Market may continue to weaken this week

MANILA, Philippines — The stock market is expected to continue to weaken this week after it was battered most of last week by fears of a full blown US-China trade war, analysts said.

“Although we saw a slight recovery on Friday, it is not out of the woods yet. Several external factors continue to spook investors. The ongoing trade war, which has been seen as a cause for slower global economic growth, is the biggest concern. The reality is, the US-China trade war has a minimal effect on our economy, but the gloom and doom from investors across the globe has taken its toll on foreign and local investors in the Philippine Stock Exchange (PSE),” said Christopher Mangun of Eagle Equities. 

ING Bank senior economist Nicholas Mapa said the US and China trade tariffs in the past few days have added yet another wrinkle to hopes for some form of global recovery in 2019. 

“What it means for markets is that general risk will dominate with oil prices also taking a backseat with global growth prospects taking a hit.  The trade fallout has hit emerging markets with even the Federal Reserve taking notice. Federal Reserve president and CEO Eric Rosengren indicating that Fed rate cuts could be deployed should global growth be threatened,” Mapa said.

Mangun for his part said that the Philippines may continue to see foreign funds flow out of the market as the MSCI rebalancing would not take its full effect until the end of the month. 

“From a technical standpoint, a break below 7,500 psychological key support level will signal a move toward the next strong support at 7,000. The best case scenario is for it to hold its support at 7,500 for the next few weeks as foreign funds flow out. This will only happen if local investors pick up the slack and buy shares as they are at very attractive levels,” he said.

Last week, most global equities markets saw some relief after the big drop that happened the week before. 

But most markets still ended the week lower. 

At the PSE, the main index continues to plunge, ending the week down more than two percent. It would have ended even lower if not for the bounce off support last Friday after ending below the key-support at 7,500 last week. 

Mangun said this may have been the reaction to the BSP announcing the reduction in the reserve requirement ratio from 18 percent to 16 percent in the coming months. 

“This will release around P200-billion into the economy which will be very favorable moving forward,” he said.

Mapa said the BSP move is the equivalent to a blood transfusion that would help the anemic economy get back to its six percent growth ways. 

“The market continues to be starved of its life blood and the reduction in policy rates would mean only a marginal increase in funds available to power economic growth,” Mapa said.  

However, despite the reduction in RRR, the banking sector still had a weak performance this week. 

Mangun said that despite the shortened trading week, there was more trading last week than the week before. The market traded P35.94-billion. 

“This could be attributed to the rebalancing of the MSCI EM Index which caused P5.86-billion worth of foreign net-outflows for the week,” he said.