Shares may drop as market corrects after surge

SHARES MAY CORRECT in the week ahead on the back of profit taking after the main index hit a high of 7,801.50, while investors also anticipate the release of trade numbers for 2018.

The bellwether Philippine Stock Exchange index (PSEi) jumped 1.04% or 80.51 points to 7,761.11 on Friday as investors welcomed the inflation report which showed the rise in prices easing to 5.2% in December. This in line with the market consensus that inflation has indeed started to slow down.

On a weekly basis, the PSEi gained 3.95% or 295.09 points, lifted by the mining and oil and property counters which soared 8.19% and 6.87%, respectively, for the week. Net foreign buying averaged at P404 million daily, thanks to more than P1 billion in foreign inflows on Friday. Turnover also improved by 37% to P6.5 billion last week as investors returned from the holiday break.

Eagle Equities, Inc. Research Head Christopher John Mangun noted this was a very good start for 2019, since this could bring back investor confidence after last year’s dismal performance.

“With the huge move that we saw [last] week, there is a strong possibility that we will see a pullback [this] week. Based on the technicals, the main index ended the week right at its major resistance areas between 7,740 and 7,800 which may cause some profit taking from investors,” Mr. Mangun said in a weekly market report.

The online arm of F. Yap Securities, Inc. also urged caution for the week ahead given the main index’s high of 7,801.50 last week.

“The focus is back on consumer and investment spending for the first quarter of 2019, which will provide a clearer view how specific industries would fine-tune their spending plan for the rest of 2019,” 2TradeAsia.com said in a separate report.

The brokerage also welcomed the December inflation report, projecting a range of 4.5-5.7% for headline inflation this year.

“Stability will be dependent on continuity of supply for basic key items, as well as measures that may be adopted by the Fed[eral Reserve] and monetary authorities,” 2TradeAsia.com said, adding that neutral or even lower rates could support sentiment for equities.

Eagle Equities’ Mr. Mangun also noted that the government will release trade numbers in the week ahead. He said the market expects a trade deficit due to the increase in imports of capital goods for the government’s infrastructure program. This was accompanied by slow growth on exported products despite more tax cuts and incentives under the new tax reform program.

“However, there is some talk that as trade tensions mount between the US and China, some manufacturing firms may see opportunities here in the Philippines and choose to relocate here,” Mr. Mangun said.

The analyst placed the PSEi’s support from 7,500 to 7,600, while resistance is pegged at 7,740 to 8,000.