Market to remain in cautious mode due to uncertainties

The market will remain in a cautious tone this week due to rising political uncertainties, the government’s deteriorating fiscal condition, and the fresh wave of criminal activities in the country.

Last week, the main composite index fell by 20.43 points or 1.53 percent week-on-week to 1,313.87 as investors continued to stay on the sidelines amidst growing political tensions and the peso’s weakness.

In its weekly report, online stock portal Philstocks.net said trading may have a negative tone this week as political uncertainties and global terrorism continue to be the market’s biggest potential pitfall.

The market has been under pressure over the past weeks now on political concerns ahead of the elections. This was further compounded when action star Fer-nando Poe Jr. confirmed last week that he was joining the May 2004 presidential race.

"Poe is considered the biggest threat to incumbent President Gloria Macapagal Arroyo’s aspirations for re-election. Even without the benefit of a political machinery, Poe’s popularity may be enough to win in the May 2004 elections. Businessmen are concerned that a victory by the popular actor will translate to a discontinuation of the economic reforms initiated by the Arroyo administration," Philstocks.net said.

Another worry often mentioned by the business sector is Poe’s lack of training and experience in economics and international affairs and the absence of an economic program and political platform. "It remains uncertain as to what the country’s fate would be under a Poe presidency," Philstocks.net said.

BPI Securities said that while most of the prospective presidential candidates have confirmed their intent to run, investors may still be sidelined as they await how the presidential race will shape up between now and January (the deadline for filing their candidacy).

BPI Securities said investors will also monitor how the peso will fare in the coming weeks. At the close of trading Friday, the peso fell to a new record closing low of P55.73 to the dollar as investors continued to unload their peso holdings.

Traders expect the peso to remain weak in the next few days, saying the that political concerns will continue to hound the local currency.

Reports that Moody’s Investors Service may downgrade the Philippines sovereign rating have also dampened market sentiment. Moody’s has placed on review for possible downgrades the country’s long-term foreign and local currency ceilings and ratings due to rising political uncertainties. The agency also placed on review for a possible downgrades the foreign currency long-term deposit ratings of seven Philippine banks.

The banks are Banco de Oro Universal Bank, Bank of the Philippine Islands, Development Bank of the Philippines, Equitable PCI Bank, Land Bank of the Philippines, Metropolitan Bank Trust Co, and Philippine National Bank. Currently, the Philippines has ratings of Ba1 for long-term foreign currency country ceiling for bonds, Ba2 for long-term foreign currency ceiling for bank deposits, and a Baa3 for local currency.

With politics hounding the markets, investors failed to respond to the favorable third quarter GDP report. The government announced last week that the economy grew by 4.4 percent in the third quarter, better than market expectations and higher than a year ago. The government earlier projected a growth range of 3.8 percent to 4.3 percent for the third quarter. For the nine months ending in September, the local economy has already posted a 4.3 percent growth year on year.

Nevertheless, Philstocks.net expects the market downside to be limited as seasonal bargain hunters may start to accumulate the more fundamentally sound issues. The market’s weakness over the past three weeks has opened up bargains in some areas and should encourage investors to nibble some issues. Among its stock picks are PLDT, SM Prime Holdings, First Philippine Holdings and Globe Telecom.

BPI Securities, for its part, said the market remains vulnerable and that renewed selling pressure may still appear if more bad news surfaces. It expects consolidation within the 1,300-1,345 point range while resistance is seen at 1,345 points.

"If the 1,300 level is breached, then we are looking at consolidation within the 1,265 to 1,300 range, "BPI Securities said.