Stocks seen to remain flat due to tension in Egypt

MANILA, Philippines - Local share prices are seen to remain flat this week due to mounting tensions in Egypt and worries that a higher inflation rate could affect global economic recovery efforts.

The Philippine Stock Exchange index (PSEi) ended at 3,872.35 last week, down 97.99 points or 2.5 percent with all major sub indices in the red led by the industrial and holdings counters. Among the biggest losers were Aboitiz Power which shed 7.7 percent, Jollibee 5.5, Meralco 4.1 percent, and EDC four percent.

The local market index broke key support levels last week as clashes between Egyptian President Hosni Mubarak’s supporters and demonstrators became increasingly violent, triggering a sellof on other major stock markets.

Protesters demanded the ouster of Egyptian President Hosni Mubarak due to high food prices, high unemployment rate in Egypt, and the low minimum wage. There were also complaints on police brutality, the lack of free elections and free speech.   

Another issue that has left many investors concerned is the higher-than-expected inflation rate.

The government reported last week that the country’s consumer prices rose 3.5 percent in January, the fastest acceleration since September last year and slightly higher than the concensus estimate of 3.3 percent. The spike was due to higher rates of food, beverages, cigarettes, fuel, and house utilities.

Rising fuel and food prices have exacerbated worries that high inflation will force policymakers in Asia and other emerging markets to aggressively tighten policy.

Philequity said higher inflation could be detrimental to the government’s efforts to achieve seven-to eight-percent GDP growth in 2011 and is seen as a “huge headwind for the Philippine stocks going forward, especially if crude oil prices breaches the psychological $100 per barrel level,”

The local economy grew 7.3 percent last year from 1.1 percent in 2009, higher than the government’s target of between five-to six-percent growth and the highest annual GDP growth in 34 years. 

AB Capital Securities said higher prices for raw materials would squeeze corporate earnings with profit growth expected to slow down to just 10 percent this year from almost 40 percent in 2010. 

“The current challenges for the market have dampened our medium to short term outlook. We have turned bearish for the medium term after the PSEi breached its exponential 50-day moving average last Jan. 18. Key support levels for the main index are its 38.2 percent and 50 percent Fibonacci retracement levels of 3,800 and 3,600.   These support levels will most likely be tested within the first half of this year,” AB Capital Securities said.