Sustained volatility in stocks seen in Q1

The local stock market will continue to see volatility in the first quarter amid high inflation and as interest rate hikes loom large on the horizon, with the US Federal Reserve possibly raising rates again within the first half.

This is according to the latest The Market Call, a joint publication of First Metro Investment Corp. and University of Asia & the Pacific.

It said that while the benchmark Philippine Stock Exchange Composite index (PSEi) was off to a good start this year, buoyed by the traditional January rally, it would likely be volatile for the rest of the quarter.

“The PSEi took a good headstart in 2023 with a 3.5-percent gain in January. However, high inflation rates (both here and in the US) and interest rates loom large on the horizon and have created headwinds for the equities market, which headed south in February. We expect much volatility in the first quarter, but remain constructive toward the financial and holdings sectors,” the report said.

It said the typical January rally has lost steam as investors took profits.

With US inflation still high, the Fed is seen raising rates again in the first half of the year.

US inflation accelerated to 6.4 percent in January, while Philippine inflation quickened to 8.7 percent from 8.1 percent in December.

“The Fed’s expectedly lower 25-basis-point policy rate hike on Feb. 1, suposed to portend a pause in first half, provided the signal to sell, even as later in the week, the US economy added a humongous 517,000 jobs (more than double expectations) and led some Fed officials to back off from an early pause. Besides, the upward revision of the last three months of US CPI showed yearon-year inflation still above seven percent by December, lead us to conclude that the Fed will again aggressively pursue policy rate increases in the first half,” The Market Call also said.

This, and local inflation in January at a 14-year high, provided the basis for local investors to shy away from the market for now, it noted.

Against this backdrop, foreigners have also taken profits from the market, resulting in larger net selling in January aounting to P7 billion from P6 billion a month earlier.

The most sold stocks in January were International Container Terminal Services Inc. and Philippine Long Distance Telephone Co., as foreigners dumped P1.6-billion worth of ICTSI shares and P1.5-billion worth of PLDT shares last month.

On the other hand, top favorites of foreign funds were P2.2 billion in foreign buying of BDO Unibank Inc. and P2 billion for Jollibee Foods Corp.

All six sectors of the market landed in the positive territory, with the financials index registering the highest increase with an 8.8 percent month-on-month gain in January.

“The rallies in the domestic bond and equities markets appear to have ended and players may have to wait for more consistent data before taking more risk,” The Market Call said.