US Fed, peso at play for PSEi

MANILA, Philippines — Investors will likely tread the week on a cautious note as they expect the US Federal Reserve to hike interest rates that would be detrimental to Asian markets, analysts said.

F. Yap Securities Inc. said the Philippine Stock Exchange index (PSEi) would face another week of thin trading, as investors await the Fed’s decision toward the end of the week.

As of Saturday, markets were placing a 60-percent probability that the Fed would increase rates in its meeting on Sept. 15-16 in a bid to contain price hikes.

F. Yap Securities said a Fed hike would worsen the economic prospects of emerging markets in Asia, particularly the Philippines. A hike will discourage capital outflows, as investors may have to borrow at higher rates if they want to expand.

Moreover, F. Yap Securities said the peso is breaking under pressure, recently hitting an all-time low of 62.68 to $1, despite monetary tightening from the Bangko Sentral ng Pilipinas (BSP). It warned that rate hikes alone may not be enough to save the peso from further depreciation.

“That is happening even with BSP having hiked three times this cycle to five percent, which tells us that rate differentials alone are not enough to hold the line, with capital flow dynamics and the widening current account gap mattering just as much,” F. Yap Securities said.

Philstocks Financial Inc. research manager Japhet Tantiangco said the PSEi is lacking a positive catalyst that could drive its return to growth mode.

For the week, Tantiangco said the PSEi would be trading at a support of 6,000 and a resistance of 6,150. He added that the market has been declining since peaking at 6,488.35 on July 21.

Investors are also anticipating September inflation to exceed August’s 6.1 percent due to oil price hikes and the peso’s continuing struggle. Externally, Tantiangco said there is still no guarantee of long-term peace in the Middle East, so commodities are vulnerable.

“Given these factors at play and with no positive catalyst in sight, investors are advised to remain cautious,” Tantiangco said.

Last week, the PSEi dipped by 0.47 percent, or 29 points, on a weekly basis to 6,061.81, dragged by renewed inflation concerns and a consequential Fed hike.