Stocks selloff continues; PSEi bucks regn’l rebound
Despite a recovery in US and regional stocks, Philippine share prices continued to fall yesterday due to expectations that the Bangko Sentral ng Pilipinas will not be raising interest rates to support the peso.
The benchmark Philippine Stock Exchange (PSEi) breached the 8,000 level, losing 150.53 points, or 1.87 percent, to end at 7,909.07 — its lowest close in more than six months. Only the Services and Mining and Oil sectors escaped the blood bath led by the Financials and Industrials counters.
In the last three trading days the index shed a total of 328 points or 4.0 percent.
Only the PSEi fell as most Southeast Asian stock markets recovered ahead of the US Federal Reserve's rate decision and outlook. The Fed is widely expected to raise rates at its two-day policy meeting that ends on Wednesday.
The focus will mainly be on Chairman Jerome Powell's commentary the next day, which may provide hints on the number of rate increases for the rest of the year.
AP Securities Head of Research Rachelle Cruz noted that most investors have already adjusted their positions into fixed income assets.
The BSP's reticence to raise rates puts the country at a significant disadvantage if the peso weakens after a potential rate raise by the Fed, analysts say.
"Companies suffering in terms of margins would be consumer companies as a lot of their products are imported from other countries," said Cruz.
Regina Capital Development Corporation Managing Director Luis Limlingan said “our expectation is that the BSP will normalize policy by hiking policy rates, beginning May or June 2018.”
He explained that this will come “as above-trend growth leads to a continued tightening in capacity utilization and inflation clears the upper end of the BSP’s inflation target band.”
“The index has fallen below our estimated fair value (8,100) but not enough that we would recommend a buy,” said Abacus Securities explaining that “upside remains limited.”
It noted that, “if equities continue to correct, we would probably start selective buying at 7,800 to 7,900. As previously mentioned, we would focus on those stocks that have borne the brunt of the sell down since January 30. We would be more aggressive if the PSEi breaches 7,400 although this is unlikely to happen, at least in the near term.”
On the other hand, if there is a relief rally, Abacus Securities said “we would look to sell near 8,300. The fact that Mitsubishi Corporation was willing to sell at the low end of the indicative range, or 16.3 percent below Ayala Corporation's all-time high, sapped a lot of confidence and investors may be more prone to take quick profits instead of sitting on gains.”
Meanwhile, Asian shares were mixed on Wednesday as some markets erased earlier gains ahead of the Federal Reserve's first meeting since the appointment of its new chair, Jerome Powell.