Stocks seen lethargic this wk

Manila, Philippines -  A lethargic mood will continue to prevail at the local stock market given a short trading week and the start of the so-called ghost month where investors are reluctant to do major investment decisions.

The market is closed today (Aug. 20) and tomorrow in observance of the end of Ramadan and the death anniversary of Ninoy Aquino.

The ghost month, which runs from Aug. 17 to Sept. 15, also coincides with the long summer holidays in the West when many fund managers go on vacation.

The Philippine Stock Exchange index shed 28 points or 0.80 percent to close at 5,206.81 last week, weighed down by thin volumes. Foreigners were net sellers for the week.

“Sentiment this week will likely be driven by events abroad as local corporate earnings season comes to an end. Also, two public holidays will limit market sentiment,” said Gregg Ilag of AB Capital Securities over the weekend.

Ilag sees the market consolidating between 5,200 and 5,300 this week. 

He noted that the PSEi is still trading at 16 times 2012 earnings, which is a premium to historical valuations.

 “Even with the current earnings growth, we think that valuations are a bit expensive. There is a concensus estimate of 11 percent full year earnings growth. However, valuations need approximately 21 percent to ease to long run averages,” Ilag said.

“Although volumes remain thin, we think that corrections below 5,200 will not last long as momentum indicators are still at mid levels and moving averages are ranging between 5,150 to 5,200,” he added.

Ilag said investors are expected to stay on the sidelines and await the Federal Reserve’s release of Federal Open Market Committee (FOMC) meeting minutes which will give insights into the US’ financial and economic conditions for the month.

Accord Capital Inc.’s Jun Calaycay said the pace of the US economy’s recovery and Europe’s lingering debt crisis remain the main worry of investors .

Despite having dropped 1.5 percent or 79.10 points in the past two weeks, the PSEi is still up 19.1 percent year to date.

“With positions taken at the beginning of the year already showing gains of at least 30 percent, expectations that the market will begin to move sideways presents an opportunity to lock-in the gains in these positions,” Calaycay said.

“With confidence, we recognize that the Philippines will not be immune to a sudden and negative turn-of-events outside our geographical borders. The globalized economy knows no boundaries and events in other continents can, may and will sting sentiments hereabouts, one way or another,” Calaycay pointed out.

Calaycay expects the market to continue moving sideways over the near-term due to the absence of fresh leads.