Stocks seen flat on rising crude prices, interest rates

Local stocks are expected to remain in consolidation phase given concerns on rising crude prices and the next direction of local interest rates, analysts said.

Last week, the Philippine Stock Exchange index (PSE) shed 32.59 points or 1,277 percent to close at 2,518.20, weighed down by losses in blue chip stocks.

"We are again hitting support at 2,500. It is likely that this current consolidation may extend below this initial support given the tapering off of foreign flows," BPI Securities said.

Online stock portal 2tradeasia.com said questions whether the US would reduce its rhetoric and accede to the United Nation’s (UN) call for diplomatic solution with Iran will be widely-monitored this week, following global fund managers’ concern on rising crude prices.

"This has further raised the bar on inflation anxieties, especially with the latest pipeline explosion in Nigeria. Iran and Nigeria are estimated to account for approximately seven percent of global crude production, and demand expectations have been firmly supported by China’s economic growth story," 2tradeasia.com said.

The US Energy bureau estimates global crude consumption could go up by 1.9 percent this year, with China’s demand expanding six percent at seven million barrels daily. Based on April’s reading, Iran produced 3.85 million barrels of oil per day, Nigeria at 2.08 million barrels per day.

2tradeasia.com said possible declines however, would likely be mitigated, as cash-rich investors reposition portfolios in favor of higher-yielding equities to maximize returns.

According to 2tradeasia.com, investors might consider reallocating more funds towards speculative mining, oil exploration and commodity-based shares, given the noticeable appetite to improve real rates of return (nominal returns adjusted to inflation).

While there has been an increasing link with crude’s ascent, gold’s estimated 73 percent year-on-year gain to as much as $730/oz. is largely associated with an expected improvement in demand as foreign fund managers skew towards good inflation-hedge instruments.

Food and beverage heavyweights San Miguel Corp. and Jollibee Food Corp.’s first quarter results which showed an increase of seven percent and 25 percent in their net profit, respectively, point to the sector’s resilience amid increasing consumer price trends.

"Other than their regional market expansion angle, operating margins have apparently been protected by price adjustments and notable efforts to further reduce costs. The sustainability of this trend might be supported this year, given management’s anticipatory strategies to protect operations from volatile crude price swings," 2tradeasia.com said.

2tradeasia.com said banks are beginning to reap the benefits of raising enough capital via aggressive asset and disposals and stringent measures either in reducing and/or maintaining single-digit non-performing loans (NPLs). Supportive measures from local monetary authorities to help raise enough cash (e.g., non-dilutive Tier-2 capital issuances) have reinforced capital adequacy indicators, and are bound to be intensified via aggressive approaches for consolidation.