Index may recover this week

The Philippine Stock Exchange index’s immediate major support is expected to settle at the 4,700 to 5,000 level as market investors continue to look for clearer signals on how the world is containing the coronavirus disease 2019 or COVID-19 pandemic.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the support level is keeping intact the underlying strong upward correction ongoing for more than a month already or since rebounding from a low of 4,039.15 posted on March 19.

“Similarly, the underlying upward trend would remain intact provided that the PSEi holds above the 11-year major support at 4,500,” he said.

The immediate major resistance is at the 5,750 to 6,150 level, which serve as an important gateway prior to further upside potential in the coming weeks or months.

Last week, the PSEi corrected lower, but Ricafort said this is considered a healthy downward correction after rising for four straight weeks.

The PSEi lost 324.99 points, or 5.6 percent, to close at 5,464.98, the lowest in three weeks or since April 3, but still among the highest in more than a month since March 13.

“The latest downward correction in the local stock market has been brought about by the two-week extension of the enhanced community quarantine in Metro Manila and in other high-risk areas, now to a total of two months, which could reduce further economic and business activities and could potentially lead to contraction in the economy,” Ricafort said.

Moving forward, he said more stimulus measures may be needed specifically for financial assistance for the most vulneable sectors.

This, in turn, will lead to more government spending, wider budget deficits and potentially more borrowings.

However, Ricafort recognized that an extension is necessary as part of the stringent measures to prevent COVID-19 from spreading further.

“Any economic losses or fallout due to COVID-19 lockdown could also be offset by the government’s fiscal stimulus measures, monetary policy easing measures, and other interventions to somewhat partly mitigate the economic losses as well as prevent the risks of recession due to COVID-19,” he said.