Stock market seen reverting to consolidation phase this week

After a strong performance during the past few days, the local stock market is seen to revert to a consolidation phase this week as investors await further news on corporate results and from the political front, traders said.

Analysts expect investors to trade with caution as fears of a possible war in the Middle East continue to outweigh positive developments on the domestic front. Together with the Venezuelan strike, the escalating tension in the Middle East has caused oil prices to shoot up, causing serious concerns across global markets.

AB Capital Securities’ Jose Vistan Jr. said profit-taking may take place due to the continued absence of fresh news to stimulate investors’ interests. Profit taking may set in as there’s still no material improvement in the economy or in the outlook for both the economy and corporate profits, he said.

The stocks may take a breather and be rangebound this week as they are near key resistance levels. The immediate resistance of the Phisix is at 1,090 to 1,100 points, Vistan added.

Last week, the main Philippine Stock Exchange composite index closed up by 23.30 points or 2.20 percent week on week to 1,081.60 as optimism on the budget deficit and the economy’s growth prospects boosted investors’ confidence.

After President Arroyo announced last month that she would not be running in the 2004 Presidential elections and would instead focus on reviving the economy during the remainder of her term , investors have turned optimistic that the economy would gain strength, raising demand for equities.

Finance Secretary Jose Isidro N. Camacho expressed confidence last week that the country’s GDP growth is within target as he sees it to land between four percent and 4.5 percent.

Investors were positioning in anticipation of more positive economic policy reforms to be pushed by President Arroyo for the remaining of her term. "The President said she will push for the passage of 14 priority bills before June this year. There were also reports that the government’s full-year budget deficit may be lower than its revised P223-billion target. This is a result of a better than targeted performance of the Bureau of Internal Revenue," Vistan said.

Vistan said the market could have posted higher gains last week if not for the lingering issues abroad. Geopolitical events had put investors at the edge of their seats, worrying about the potential impact on stock prices of a US led military strike against Iraq.

In a report, RCBC Securities said: The US-Iraq issue still remains a concern, especially on how such a conflict would impact on future oil prices. Already, global crude oil prices have shown volatility in recent months and this could continue if the conflict would not be resolved soon.

Vistan said: "Investors will continue to be wary of the uncertainties caused by war jitters in the Middle East and North Korea. Any move to avert war would be a welcomed development for the market and provide enough confidence to pull the market up to the next level.

"Overall, the mood is still of cautious optimism with foreign investments slowly trickling in. Such buying interest may remain healthy but selective if there will continue to be a lack of negative news."

Among the more favored stocks are Ayala Corp., Philippine Long Distance Telephone Co., SM Prime Holdings and Ayala Land Inc.