Philippine Market Outlook Aug 13, 2018
MARKET OUTLOOK
The stock market will likely keep trading lower as investors continue to digest last week’s growth and inflation surprises and the latest central bank rate hike.
The PSEi is currently up 1.7% for the month and after trading sideways last week, there is strong indication of a pullback this week. Investors will continue to factor in the disappointing economic numbers from last week that fell short of most analysts’ expectations.
The Philippine Statistics Authority (PSA) reported on Tuesday that inflation accelerated to 5.7% in July, higher than June’s 5.2% and the fastest in more than five years. Year to date, inflation is now at 4.5%, well beyond the central bank’s 2% to 4% target.
Last week also saw the release of latest economic growth data which showed that the Philippine economy, as measured by gross domestic product (GDP), grew by 6% in Q2 of 2018. This is the slowest pace since Q2 of 2015, when GDP expanded by 5.6%.
Household spending, which accounts for 60% of GDP, slowed to 0.2% in Q2 of 2018 compared to 6.3% in the same period a year ago.
As such, the lagged effect might be visible for the remaining quarters, as consumers and investors alike, adjust to the initial phase of the Tax Reform for Acceleration and Inclusion (TRAIN) law.
Meanwhile, the central bank last week hiked interest rates by 50 basis points, marking the third consecutive tightening move by the Monetary Board this year in a bid to temper inflation. Benchmark interest rates now range from 3.5% to 4.5%.
Majority of well-run listed firms have proper risk management governance that should be able to absorb any sequel changes that might take place.
On the upside, investors should see market declines as an opportunity to shop.
The property sector has been bullish since the beginning of the year and is expected to continue to perform well. Conglomerates that were laggards last year are also in favor as investors have found it easier to make money from them as compared to their peers.
Investors are advised to watch out for opportunities and hunt for undervalued stocks.
Contrarians in a ghost month believe in opportunities on lulls or in dips. There have been discussions on the probability for weakness, but it pays to be alert too when opportunities arise than chase the boat later on.
The PSEi’s support is placed from 7,530 to 7,660, with resistance from 7,880 to 7,960.
