Stocks seen to pause and consolidate after record run

MANILA, Philippines - After breaking out to new highs, the local stock market may pause and build consolidation patterns with the main benchmark index seen trading at a range of 5,440 to 5,600 this week, traders said.

The Philippine Stock Exchange index (PSEi) zoomed to a fresh all-time high last week, crossing the 5,500 level to close 113.06 points or 2.08 percent higher at 5,552.34, buoyed by aggressive buying into blue chips.

 “After a series of fresh highs, we think that the local market will be needing a technical breather. The PSEi exceeded the target level of the cup and handle formation which is at 5,520. Though stochastics indicate that there is still room for the main index to inch up, investors may cash in gains ahead of the shortened trading next week,” said Abbygayle M. Estrella of AB Capital Securities.

The stock market will be closed on Friday, Nov. 30, to commemorate the birth anniversary of Andres Bonifacio.

Estrella said investors are keenly awaiting the outcome of negotiations between re-elected Democratic President Obama and the Republican-dominated Congress on measures to prevent the US economy from falling off the fiscal cliff.

 “With barely a month left to solve this urgency, the US fiscal cliff is one of the biggest challenges the Obama administration has to face and markets will surely be sensitive on the upcoming developments,” Estrella said.

On the homefront, investors will watch out for the release of third quarter gross domestic product data.

Another factor that may affect market sentiment is Greece’s lingering debt crisis, she pointed out.

 “Greece is still an underlying issue in Europe as to whether or not the second tranche of bailout funds will be granted to the debt-stricken country. European leaders are currently meeting in Brussels to fix the Union’s budget deal,” Estrella said.

Nevertheless, Estrella foresees the market hitting the 5,600 level next month, buoyed by holiday-driven consumer spending and a wave of positive corporate news.

Freya Natividad of local stock portal 2tradeasia.com said equities and other alternative securities will continue to get more attention from fund managers given sluggish returns from fixed-income instruments.

 “It would take time before industrialized markets heal from their present fiscal imbalance, and Asian markets are key beneficiaries.  Sectors with double-digit long-term returns will be favoured, especially those in infrastructure, tourism, gaming, financials and energy,” Natividad said.

Merger talks between Bank of the Philippine Islands and Philippine National Bank caused considerable excitement in the stock market last week with banking stocks posting the biggest gains at 5.08 percent.