Stocks seen consolidating within narrow range as investors remain cautious

Stocks moved modestly higher last week but analysts still expect the market to consolidate within a narrow range over the medium term as investors remain clueless on when the global economic slowdown would come to an end.

"As investors look forward to prospects for the next year, we may see continued accumulation on selected sectors; however, with the outlook for the economy clouded, market appreciation may be capped early," BPI Securities analyst Spencer Yap said.

He added that if the Phisix breaks above the psychological 1,000-point mark, a more definitive call on its immediate direction can be made.

The index ended last week’s trading at 999.79 or 6.44 points (0.65 percent) higher from a week earlier, although it moved within a limited 15-point band ranging from 985 to 1,000.

"This is a good sign since the market has been in a net foreign selling position for the past few weeks. However, the market confidence is still dampened by the terrorist attack in the US last September. An improvement in consumer confidence abroad would help perk up domestic confidence," another BPI analyst, Roberto Cano, wrote at bpitrade.com.

He added investors are likely to focus on companies with strong balance sheets and net income performances. "We expect market sentiment to improve as companies resolve their debt problems and strengthen their balance sheet position."

The BPI analysts said as investors initially sold down some blue chips in anticipation of weak third quarter earnings results, expectations of a cut in interest rates by the Bangko Sentral, however, has curtailed selling pressure.

The BSP cut its key overnight rates by a half percentage point (50 basis points) last Thursday, making its 11th cut this year amid mounting signs of a deepening domestic economic slowdown. The move came shortly after the US Federal Reserve annpounced a 50-bps rate cut, a lower than expected inflation report and the appreciation of the peso.

Lower interest rates reduce borrowing costs and encourage business activities. It is also good for stocks as it provides more liquidity since the rate cuts may prompt fixed-income investors to switch back into the equities markets.

But according to AB Capital Securities’ Jose Vistan, there is no assurance that even interest rate cuts will buoy buying at the moment.

"It is hard to be hopeful amid layoffs and worries that consumers will further reduce spending. The market is likely to hold on to its current levels," he said.

Although it provided some decent buying support, the latest rate cuts were not considered a definitive catalyst that could shift the market’s perception, Vistan wrote at the investment website PhilStocks.net.

"The moves were not exactly surprising as there have been a constant flow of discouraging economic and corporate news. Investors were playing it cautious as they remained worried of weaker economic activity and corporate earnings going forward," he added.

Adding to the weak market sentiment is the ongoing concern over debts, particularly foreign-denomianted, plaguing local companies, Vistan said.

"Based on how far we’ve dropped, we may still have some upside for the market. Some may buy on hopes that at some point the troubles will be over and earnings will come," he pointed out.