Although market sentiment remains positive in the short term given the strong corporate performances as of the third quarter of last year, local stocks are expected to mirror the over 200-point loss in the Dow Jones industrial average last Friday at New York stocks tumbled to the biggest daily plunge in almost three years.
Low interest rates and the strong dollar inflows are likely to boost interest in the banking and property sectors, says BPI Securities.
Investors will also take a close look at how the EPCI-BDO merger deal works out and its impact on the industry.
Mining stocks closed lower due to profit taking given the strong gains last week, but BPI Securities expects this sector to enjoy strong interest due to strong world metal prices and on expectations that it will benefit from the influx of new investments.
Investors may be positioning ahead of the corporate results for 2005. This early, PNB posted a 2005 net profit of P610 million, up 73 percent from P353.2 million of the previous year. The VAT rate hike in February should also boost domestic sentiment.
However, AB Capital Securities expects the market to take a technical rebound this week, aided by positioning ahead of the full implementation of the expanded value-added tax.
"We have worked off some excesses from the market’s steep rally since November 1. The negative divergence between the PHISIX and its relative strength index is already history," says AB Capital.
Moreover, the PHISIX is very close to its major support of 2,090, its 50-day exponential moving average, where we expect it to make its recovery.
"The only concern that will be hard to figure out is the country’s political outlook. The classic pattern in nearly all coup rumor driven markets is for share prices to drop, continue to fall for a while, then recover powerfully."
Just as during the Hello Garci concerns of last year, the escape of the four Magdalo soldiers would lead to a drop in investors’ confidence.
Living in a state of constant anxiety, investors will be reluctant both to spend and to invest, and the economy may sink into stagnation.
"Notwithstanding, we believe that the persistent political concerns will rather lead to important policy changes that will set the stage for a major economic recovery, perhaps as early as the end of this year," says AB Capital Securities.
"When the dust settles, the only major catalyst for the market will be the full implementation of the expanded value added tax law by February 1.
This will shift the market’s attention away from the coup worries and bring investors back from the sidelines."
Expectations of an increase in the VAT rate has helped the market hold up in a trading range despite the current negative political environment.
AB Capital Securities noted that despite the market’s recent weakness, many are still optimistic about 2006’s prospects because of hopes for an end to the government’s fiscal woes, a retreat in oil prices and strong foreign demand for Philippine stocks.
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