Tax reform, earnings in focus after record rally

THE APPROVAL of the final blueprint of the tax reform package will be this week’s highlight, with investors looking to this legislative move to drive up the local market.

Last week, the Philippine Stock Exchange index (PSEi) gained 139 points to end at 8,310.88, up 1.71% week on week, reaching a high of 8,406.34, which was also a record for the bellwether.

Investors opted to shrug off negative news last week on the back of optimism on third-quarter earnings and US President Donald J. Trump’s tax overhaul proposal. This, despite the succession battle for Federal Reserve chairman and after Secretary of State Rex Tillerson publicly confirmed his intention to maintain the position.

Meanwhile, Philippine inflation reached 3.4% in September, inching up from August’s 3.1% and bringing the nine-month average this year to 3.1%.

For this week, analysts said investors will watch out for news on the government’s tax reform program, which could help the PSEi sustain its record-breaking rally.

“Market participants will wait with bated breath legislators’ agreement on the final tax reform plan, which should bring about increased disposable income [ and] savings,” said 2TradeAsia.com in a statement over the weekend, while noting that sectors seen to benefit the most from the tax plan include retail-related shares, banks and property.

According to 2TradeAsia.com, improved consumer spending will buoy higher capital spending from listed firms ahead of budget planning initiatives for next year.

“Timed with the Yuletide season, sentiment is bound to ride on improved liquidity, especially with the seasonal uptick in remittances. Increased loan take-up and/or higher fee-based receipts are in store for those engaged in the financial industry,” the online brokerage firm added.

“Because we’re on a new high, we can’t say if [it] can run up,” said Summit Securities, Inc. President Harry G. Liu in a phone interview over the weekend.

“We need additional good news for the investing public to be more aggressive,” Mr. Liu added, noting that the initiatives to finalize the tax reform package and positive corporate earning results are some of the catalysts seen to push the index to a new record high.

“So far… it’s positive. It’s just that we need more positive developments,” he said.

2TradeAsia.com noted the government’s initiative to develop the infrastructure sector will help spur more economic activity.

“This infra rollout is bound to trickle down on key sectors, as it opens up opportunities to expand business investment and employment,” the firm said, adding that shares with solid infra- based directions are seen to benefit from this, while energy- related shares might also post gains as power plant maintenance and/ or replacement efforts are fortified in light of the government’s provincial push.

Immediate support is seen at 8,270 points to 8,300, while resistance is pegged between 8,400 and 8,470, according to the analysts. —