Local stocks to track lead of Wall St this week – analysts

Share prices will likely follow the lead set by Wall St. this week, following promising signs that the United States may avoid an economic slowdown, dealers said.

The local market already began recovering last week and has been encouraged by US President George W. Bush’s announcement of a plan to rescue homeowners facing foreclosures, easing concerns about the US subprime mortgage crisis.

“Whatever happens to the US market, the Philippine market will follow,” said James Lago of Westlink Global Equities.

Concerns over a short-lived mutiny by renegade military soldiers the other week have already faded, he said. “That has already been factored in. But investors are still looking at what is happening with the US market,” added Lago.

For the week to Dec. 7, the composite index PSEi rose 166.84 points or 4.7 percent to 3,745.39 points.

Average daily volume fell to 2.56 billion shares but value rose P4.92 billion from 3.82 billion shares worth P4.575 billion in the previous week.

While the main index is still four percent below the record high reached in Oct. 8, it has gained 8.4 percent since Nov. 22.

“At the rate the PSEi is going, we could see last month’s losses erased by next week.  The positive bias may extend beyond this year with another positive seasonality known as the January effect,“ said Jovis Vistan, research head of AB Capital Securities.

“The PSEi is in a five-wave rally from its Aug. 17 low of 2,874.99 and we are now entering the last and final fifth wave of the said run up. The current fifth wave run-up has a potential to stretch up to 4,100. It may also end up as a double top at around the 3,900 level,” Vistan added.

Vistan, however, warned that once the rally is over, the market could undergo a major correction that could last for three to four months or even longer.

“Investors are currently relieved that the US housing sector is beginning to see some light.  However, we believe that the market will still show above average volatility.  Even as the market appears to be bullish on the short term charts, traders are quick to sell on hints that the US credit crunch will persist.  It’s hard to say with certainty that the market’s current rally is built with solid fundamental foundation,” Vistan said.

“We’re still fully dependent on the performance of the US market,” said Nestor Aguila, president DA Market Securities.

However he also said the market was entering the traditional Christmas season when trading is usually slim.

“We’re entering the zone for Christmas so we’re basically just consolidating,” he said predicting the index would trade between 3,680 and 3,800 points.

Aside from that, both Philippine economic fundamentals and the corporate indicators of blue-chip stocks were doing well, he added.