Bargain hunting seen to arrest market decline

A late rally the past week helped reverse the stock market’s continued downturn although analysts believe the index could still break below the nine-month low it touched on Thursday given the still unstable market conditions particularly on the foreign currency exchange counter.

"We expect the market’s decline to slow as we near support at 1,250; bargain hunting is expected to step up given the overwhelming attraction of the low prices of many major index issues," Spencer Yap of BPI Securities said.

After opening slightly higher on Monday, the 30-company Phisix steadily dropped, plunging to a fresh nine-month low of 1,278.40 on Thursday as concerns over possible foreign exchange controls added to the prevailing negative market sentiment long hounded by weak corporate results, poor economic prospects and the deteriorating peace and order situation in the country.

However, the market recovered on Friday as the strong peso appreciation combined with an oversold market provided the impetus for bargain hunting. The Phisix closed the week at 1,294.23, although this was 33.94 points or 2.56 percent lower week-on-week as renewed foreign selling on a few major index issues weighed down on the market’s overall performance.

BPI Securities analyst Roberto Caño said with the market almost touching the recent lows, bargain hunting came in to provide support. He said blue chip issues such as PLDT, Meralco, Ayala Corp. and Ayala Land straddled in their eight-year lows which may have attracted some bargain hunters to accumulate these issues.

"The peso appreciation also helped provide a more positive sentiment. Investors, however, would still like to see a more stable exchange rate. If we apply the contrarian approach, we still think that the current level provides investors a good opportunity to bargain hunt since the market is oversold and market sentiment remains negative," Caño said.

A number of index-linked companies had released their respective first semester profit results which, as a whole, were less than inspiring. Telecoms giant PLDT continue to be weighed down by losses from its subsidiary Piltel and weakness in its traditional business, the fixed line service. Broadcast firm ABS-CBN’s double-digit growth in revenues and pre-tax profit also failed to flow through to its bottomline as higher depreciation and interest expenses ate away at profitability. Ayala Land, meanwhile, continued to suffer from a weak property market.

Yap said for the next trading sessions, investors may be inclined to overlook weak first semester corporate results in favor of low share prices as well as prospective improved performance in the second half. However, he said pressure from foreign selling will remain a potent determinant of the market’s direction.

From a technical standpoint, the BPI report said since the market is still oversold, the bottom picking may extend until this week.

"The market held at the 1,277 support and is now testing the resistance at 1,300. The long-term up trendline (from 1990 to the present) with support at 1,260 to 1,270 remains intact. We saw firmer support in the market but it is still too early to say if the market has reached its bottom," Caño said.