Stocks may see sideways consolidation with upward bias

MANILA, Philippines - Local stocks may see sideways consolidation pattern with an upward bias amid a growing economy and expectations of another interest rate cut.

“Looking ahead to the next two weeks, there are hardly any negative influences that may pull the market lower. On the domestic front, the biggest potential news is another rate cut by the central bank on Dec. 13,” said Jun Calaycay of Accord Capital Equities Inc.

Calaycay said the listing of D&L Industries on the exchange may also boost liquidity.

The Asian Development Bank has raised its full year forecast for the economy and the region. Southeast Asia, previously estimated to expand 5.2 percent, is now seen to grow 5.3 percent. Growth is being led by the Philippines and Malaysia, posting third quarter growth of 7.1 percent and 5.2 percent, respectively.

Calaycay noted, however, that the broader Asian region is seen to be strongly influenced by the US and Europe with economic expansion seen to slow to six percent from an earlier forecast of 6.1 percent for 2012 and a similar one percentage point cut in 2013 to 6.6 percent.

The country’s gross international reserves, an indicator of the economy’s ability to pay for its transactions abroad including debt servicing, hit a record $84.105 billion in November, breaching the recently revised-full year target with still a month to go. “This is equal to over a year’s worth of imports and 12x the country’s short term external debt based on original maturity and 6.8x based on residual maturity. This overshadows a DTI official’s report that our investment goals for 2012 may have been missed the 22-percent growth projection,” Calaycay said.

The approval of the “sin tax” bill by the bicameral conference committee bolsters the Philippines’ bid to earn its first investment grade rating. Although the revenue targets out of sin taxes were lowered, the DOF was able to push through some of the reforms it wanted. First year take is estimated at P34 billion, P6 billion off the government’s target.

The committee report reveals agreements on the shift to a unitary tax rate, automatic indexation to inflation and compliance with WTO agreements to discourage uncompetitive behavior.

While technical indicators point to reaching overbought levels for stocks and the index alike, the current bullish sentiment might continue to propel the PSEi higher, said Maria Arlysa Narciso.

“However, we see a slight possibility that having gone up too early and too soon calls for a moment of rest or consolidation. The PSEi level that we are seeing right now came a few weeks early from the usual month or year end window dressing,” Narciso said.

Notwithstanding the financial troubles of Europe and the US, growing unrest in parts of the Middle East and a slowing Chinese economy, the PSEI set record closing levels 36 times so far this year.

To-date, the PSEI main benchmark index has gained 32.53 percent.

“With only three weeks-worth of trade left in the market’s calendar, correction-watchers are running out of space. If a year-end rally is to materialize the long-waited for correction may be brief and sudden, if at all,” Calaycay said.