Market seen to decline further this week

With no significant improvement in the peace and order situation in Mindanao, the market's downside momentum appears out of control, with as most analysts predicting that the composite index will move closer to the precarious 1400 support level this week.

"The stock market is now more a reflection of the country's political situation," Wellex Global Equities research head James Lago said, referring to the armed conflict in Mindanao that has attracted international attention and further undermined investor confidence in the Philippines.

The Southern turmoil pushed the Philippine Stock Exchange index to drop to an 18-month low of 1551.90 last Friday, as jittery investors dumped local shares ahead of an expected hike in US interest rates by mid-May.

"The BSP (Bangko Sentral ng Pilipinas) has to make an aggressive stance to match the Federal Reserve's rate increase to ward off possible speculative attacks on the peso," Lago said. The peso closed steady at P41.28 to a dollar last Friday.

An analyst from a local brokerage firm said it would be interesting to watch how the BSP would react to the US rate hike, which point to a hefty 50-basis point increase, considering the weaker performance of the export sector in the early part of the year.

"There would be questions on how government would be able to increase dollar reserves, although exports is just one of the contributors," he said.

Erwin Tan of Securities 2000 said since prices have moved into "tempting territories" the past few days given the continued slump in market sentiments, it would not be surprising to see "daring contrarians and bargain hunting nowadays inquiring once again about some value issues such as Meralco, Ayala Land and Ayala Corp.

"As much as fundamental values can be derived for the long-term holders, short-term direction does not seem to be favorable given the present political and economic constraints. In brief, we certainly do would not want to be the hero in this present state of the market that remains vulnerable to increased downside risk with no enviable upside in sight," Tan said in a report.

Last week, the market breached the 1600 support level as investors frowned on the combined effects of the Mindanao problem, the US rate hike, weaker earnings of local firms and the damage brought about to the financial sector by the closure of Urban Bank and the ensuing bank runs in a number of medium-sized commercial banks.

The Philippines was again thrust into the global limelight in a negative way when a still unidentified computer programmer sent out last Thursday a virus -- codenamed the LoveBug -- from a local site via e-mail, causing widespread havoc at lightning speed on the computer systems in Europe and the US, including the supposedly impenetrable Central Intelligence Agency.

This development, in turn, could infect the stock market, specially technology issues or Internet stocks like PhilWeb, Music Corp., SPI Technologies and AJO.net along with those transforming into Web companies such as Imperial Resources, Island Mining, Wellex Industries and Omico.