However, corporate performance in the third quarter may provide valuable insights to investors since it was during this period wherein the prices of oil hit its highest level and where the peso was at its weakest, says BPI Securities.

Another concern is the continuing political tension where the opposition continues to mount protest rallies calling for the ouster of President Arroyo.

"We feel that the dips in the market would be an opportunity to accumulate," says BPI Securites.

"Investors may be skeptical of positive corporate profits given the difficult environment during the third quarter period. They may want to see the trend of the corporate net profit reports before they decide to buy in."

"However, even if corporate net profit results are good for the third quarter, investors may decide to wait for the impact of the price increases this coming November. Also, come January next year, the VAT rate may be raised to 12 percent from 10 percent, and this may mean another round of price increases."

AB Capital Securities noted that the market has finally broken out from its consolidation mode, with the market’s tone turning bearish in the medium term.

"Market sentiment is turning negative as global growth forecasts are being cut while interest rates are rising. The country’s ever volatile political environment is turning foreign investors off. Although investors are not pushing the panic button yet, it makes sense to lighten up and take profits on some investments," says AB Capital Securities.

"The market was expected to react positively to the EVAT’s approval.

However, the market’s response to the EVAT was neutral as most investors chose to wait until it is actually implemented on November 1. Some remain wary as there are moves to defer the implementation of the law to June of next year."

"The market’s decline also reflect a greater worry about slowing economic growth paired with rising inflation and interest rates ahead. The market’s worry is that while earnings are good right now, earnings won’t be strong in 2006 if rates go too high while confidence consider to shrink," says AB Capital Securities.

"We are going to start getting earnings results from the third quarter, and from early indications, the results are going to be mixed.

Meanwhile, guidance in general is cautious for the fourth quarter. We also expect to hear a lot of political noise in the coming weeks. Militant organizations and the political opposition have been staging protests rallies calling for the ouster of President Arroyo."

Property issues closed lower after Bangko Sentral raised overnight rates by 25 basis points. Ayala Land fell 40 centavos and SM Prime Holdings slid 10 centavos.

"While the market viewed positively the Supreme Court’s decision to uphold the constitutionality of the EVAT law, the market is getting mixed signals as to whether the government has the political will to implement the new law. There are moves in Congress to exempt power and fuel from VAT," says BPI Securities.

At this difficult time when fuel prices are already relatively high, the imposition of VAT on fuel and power is expected to raise the cost of these items further, which in turn would also result to higher cost of goods and services.

There are fears that this series of price increases may result to higher inflation. Bangko Sentral has raised overnight rates by 25 basis points in order to stem inflation down the road.

BPI Securites noted some concerns that the increase in fuel and electricity prices and other goods may also restrict consumption and also impact corporate earnings.

"However, there may be some factors that would help mitigate the impact of the VAT. First oil prices seemed to be correcting after hitting a high of US$70 per barrel sometime in August and September."

In the third quarter, oil prices were trading at the US$56 to US$60 per barrel. Oil prices are now back closer to the US$60 per barrel. It seems that oil prices are again close to the level where it started during the third quarter period.

Third, Meralco would reduce the inter-class subsidy among its customers next month and this will result to lower bills for commercial and industrial customers.

The additional 10 percent VAT in electric bills of commercial and industrial customers should be partially offset by the reduction in electric bills due to the removal of the interclass subsidy.(Edu Lopez)