Analysts expect little action as investors await election results

Sideways trading is expected to persist in the market this week as the election counting remains an overhang and threats of protest keep investors at bay.

Even as the Supreme Court rejected an appeal to temporarily stop Congress from counting the votes for the presidential and vice-presidential candidates, investors remain wary of the slow pace of canvassing by Congress. As of last Friday, Congress has not finished opening all the ballot boxes.

"Such slow progress will keep investors sidelined and leave the market in its sideways mode," BPI Securities said in its weekly market report.

BPI Securities said there are fears that the delay could result in Congress failing to declare a winner in the recent presidential election by June 30, 2004. "If this happens, this would create a power vacuum," BPI Securities said.

Under the Constitution, only Congress can proclaim the winners of the presidential and vice-presidential races.

The electoral process has been hampered by allegations of fraud, resulting to the scrutiny of election returns. Another issue raised by the opposition was the alleged procedural bias favoring incumbent President Arroyo.

Exit polls and unofficial tallies have shown that President Arroyo had won a fresh six-year mandate.

AB Capital Securities research head Jovis Vistan, however, said the start of the actual canvassing will still be good news for the markets.

"The correction in crude oil prices and the actual canvassing should provide the perfect backdrop to rally. The only drawback could be the growing probability of rising US interest rates," Vistan said.

Vistan said he expects investors to shift to a more aggressive stance before the fourth quarter.

Vistan said external concerns such as possibl hike in US interest rates remain while concern on high oil prices have eased as OPEC decided to increase oil output by two million barrels a day to 25.5 million barrels starting next month. Earlier this week, crude oil prices shot up to a record close of $42.25 due to a terrorists attack in Saudi Arabia, which killed 22 people.

"Strong data from the US have raised fears of aggressive rate hikes by the US Federal Reserve, which could dent global economic growth by crimping consumer spending and raising borrowing costs. Almost half of economists surveyed by news wires expect the Fed to boost its target rate when the Open Market Committee meets on June 30. All but one of those who expect an increase predict a rate of 1.25 percent," Vistan said.

BPI Securities said the market is likely to consolidate above the 1,500 to 1,572 range. Support is 1,510 while resistance is at 1,560.

Last week, the main Philippine Composite Index closed at 1,524.45, up by 7.25 points or 0.48 percent week on week.

RCBC Securities said the medium -term outlook for the market will be dictated by the recovery which the economy anticipates given a strong first quarter performance for the year. Sectors which showed signs for further strengthening would be the service sector and the industry sector. Food manufacturing and the consumer sector would likewise benefit from the strong agriculture sector.

"We expect that overall 2004 GDP growth may be close to the higher end of the target range of 4.9 percent to 5.8 percent of GDP growth of government," RCBC Securities said.