Geopolitical concerns to weigh down index

A more hawkish stance of the US central bank, a brewing armed conflict between Russia and Ukraine, and a rebalancing of stock portfolio, with changes in the Philippine and MSCI indexes would likely keep trades on a downward bias this week.

The benchmark Philippine Stock Exchange index (PSEi) corrected lower for the second week of February, declining by 185.99 points or 2.5 percent after the previous week’s gains of 204.38 points or 2.8 percent.

Last Friday, the PSEi closed at 7,270.36, down for the second straight day, by 162.26 points or 2.2 percent. It was the lowest level in two weeks after reaching new pre-pandemic highs since February 2020.

Michael Ricafort of Yuchengco-owned Rizal Commercial Banking Corp. said the recent correction in the local stock market was in line with the healthy downturn in the US and global stock markets after hefty gains the past months, partly triggered by more hawkish signals from US Federal Reserve officials.

He said the rise in global crude prices, partly triggered by the Russia and Ukraine geopolitical crisis, is also affecting market sentiment, as this could also lead to higher inflation and long-term interest rates that could, in turn, increase financing costs for listed companies.

On the domestic front, Ricafort said the upcoming five-year Retail Treasury bond (RTB) auction pricing tomorrow and offering period from Feb. 15 to 28 would also be a consideration for the local financial markets.

This would mean investors may prefer to park their funds in RTBs instead of the stock market. It could also raise borrowing costs.

“The RTB offering could siphon off some of the excess liquidity from the financial system, including some funds away from the local stock market, as competing investment alternatives, at times. Furthermore, the RTB offering could lead to more supply of government securities, which could lead to higher bond yields and long-term interest rates as seen lately, could also lead to higher borrowing/finacing costs for some listed companies,” Ricafort said.

For this week, he said the index’s immediate support could range from 7,200 to 7,300, which would help keep intact the underlying upward trend over the past one to two months.

The next important resistance, he said, would be at the range of 7,400 to 7,500, as the next gateway into new prepandemic highs or toward the 7,800 to 8,000 levels.