Stock market fall may continue on rising inflation

MANILA, Philippines — The market may continue to weaken this week following the meltdown last Thursday, traders said.

Chris Mangun, head of research of Eagle Equities, said record high crude oil prices could aggravate concerns on rising inflation.

The benchmark Philippine Stock Exchange index ended the week at 7,726.72 and closed at a one-year low on Thursday as market investors dropped Philippine stocks like a hot potato.

For this week, Mangun sees two scenarios.“I am looking at two scenarios for next week. First scenario is that the index trades within a 100-point range between 7,600 and 7,750. This is one possibility as the market calms down and consolidates at this area,” he said.

The second scenario is that the index will test the 7,500 level if it loses another 200 points.

“If this happens, we will see volume and value turnover pick up. My biggest concern is higher crude oil prices, we have seen record high oil prices this week going all the way back to 2014. Higher oil prices mean higher inflation, and this may have a negative effect on the market,” Mangun said.

But he said the decline would be an opportunity for the small and mid-cap companies.

Recapping last week’s performance of the PSEi, Mangun said the index broke below the congestion area between 7,900 and 8,100.

“However, it held the next major support at 7,700 after coming all the way down to 7,537.42 on Thursday due to a heavy outflow of foreign funds,” he said.

Net-foreign selling reached P2.91 billion last week.

“Nonetheless, in two out of the five days we saw foreign funds flow in. The last time we saw more than one day in a week of net-foreign buying was in January. This tells me that foreign investors are testing the waters and that they are starting to get in at the current levels. Investors continue to favor small and mid-cap companies as we they wait for the index to bottom,” Mangun said.

Meanwhile, analysts said investors would also be keeping a close watch on interest rates.

Jonathan Ravelas, chief market strategist at BDO, said short and long term rates may continue to move sideways this week.

The government reported March consumer prices rose 4.3 percent year-on-year versus a median estimate of 4.2 percent.

The Bangko Sentral ng Pilipinas (BSP), for its part, said it is studying the appropriateness of a measured response to inflation.

“The coming task for policy makers is to carefully evaluate the appropriateness of a measured policy response to firmly anchor inflation expectations,” BSP Governor Nestor Espenilla Jr. said.

F. Yap Securities said preliminary indications on first quarter performance of corporates would also serve as proxy guidance, which may convince skeptics whether growth targets would be in-line this year.

“Select stocks commonly used as ‘proxy bets’ per sector category will deserve a closer look, especially those tied to consumer spending trend and capacity utilization, among others,” it said.