Expect lackluster stock trades in H1, says COL Financial

MANILA, Philippines - The Philippine Stock Exchange index is expected to remain weak in the first half given the continued weakness of the Chinese economy and the US Federal Reserve’s divergent monetary policy, COL Financial said.

However, COL vice president and head of research April Lynn Tan said there are opportunities in the ongoing market selloff but at the same time cautioned investors to manage risks.

“Nobody knows how deep and how long the weakness will last assuming that we do enter a bear market,” she said.

COL is an online stock brokerage house.

To manage risks, Tan said investors should use only long term money when buying stocks, spread out buying over a period of 18 months, and set conservative buying prices.

Tan said investors should stay defensive in selecting stocks and be mentally prepared to see losses in the short term.

The weakness of the Chinese economy is pushing commodity prices lower, while the US Fed’s divergent monetary policy is resulting in the strengthening of the US dollar, she noted.

“These factors are seriously hurting developing economies which are highly dependent on commodity exports and are suffering from current account deficits,” Tan said.

She said while the Philippines is relatively resilient as it is a net importer of commodities, it is already showing signs of vulnerability.

One major challenge is the Middle East factor, which could weaken dollar remittances from overseas Filipinos.

“OFW remittances growth already decelerated to 3.7 percent during the first 10 months of 2015 and is at risk of weakening further given Filipino OFWs’ large exposure to the Middle East,” Tan said.

She said 23 percent of total remittances comes from the Middle East and 61 percent of annual land based deployment goes to the Middle East. The region is highly dependent on oil exports but prices of oil are currently in a global slump.

Despite the prevailing global challenges, Tan said the Philippines remains relatively resilient given a strong BPO sector, the favorable impact of the weaker peso on consumer spending and the country’s favorable demographics.

She recommends buying stocks when the local benchmark index reaches the 6,400 level.