PSEi seen testing 6,800 level

MANILA, Philippines - The benchmark index is seen to inch closer to the 6,800 territory this week as more investors test the strength of the local bourse amid valuation concerns and negative news abroad.

Fund re-allocation from stocks to fixed-income assets will also affect trading this week, which will highlight the importance of defensive and dividend plays, analysts said.

“Less pressure on rallies could indicate new players are settling in, and might prod relatively smaller investors to follow suit,” said Rens Cruz, investment analyst at online brokerage firm 2TradeAsia.com.

“It would be prudent to ride market gyrations for now, as players aiming to re-position check for trends in supply pressure during intra-day rallies,” Cruz said, adding that immediate support is 6,660-6,700 and resistance at 6,770-6,800.

Week-on-week, the Philippine Stock Exchange index slipped 0.79 percent or 54.99 points at 6,730.96, snapping two consecutive weeks of gains as sellers dictated trades. Average turnover jumped 32 percent to P9.24 billion from a week ago.

Investor sentiment was dragged down by the International Monetary Fund’s downgrade of its US economic growth forecast while the US Federal Open Market Committee reduced anew its monthly bond purchase program by $10 billion to $35 billion.

Geopolitical tensions continued, resulting in volatile crude oil prices, as US defense forces helped Iraq’s al-Maliki government defeat the militant Islamic State of Iraq & Levant.

Cruz said volatility in funds flow should still be seen, with some institutional investors warm-up their basket towards the fixed-income side ahead of higher interest rates.

But overall, Cruz said “we do not see an increased likelihood for aggressive fund re-allocation in fixed income, owed to rising consumer prices.”

The local bourse will still be attractive, particularly stocks with dividend plays, Cruz said.

“In light of the disappointing (first quarter) gross domestic product numbers, we see glamour stocks losing their leadership roles,” Metrobank Group’s First Metro Investment Corp. and the University of Asia and the Pacific (FMIC-UA&P) said in a market report.

“We think defensive stocks (value and low beta stocks) will perform better in an environment where earnings multiples are contracting,” it added.