Mart seen flat as investors stay on sidelines this week

MANILA, Philippines - The local stock market may open flat this week as investors stay on the sidelines while US lawmakers try to reach a compromise on a measure to raise the $14.3 trillion debt ceiling.

“The resiliency shown by local stocks in the last two weeks will be put to the test as global markets face the inevitable Aug. 2 deadline for the US to come up with a solution to their debt ceiling woes,” said Accord Capital Equities Inc.’s Jun Calaycay.

“Sans an agreement acceptable to the White House and Senate who favor a longer term extension with tax hikes for the wealthy Americans on one hand and the Republicans demanding a short term plan with spending cuts at the core, the US will default on its obligations for the first time in its proud history as a world economic power,” Calaycay further said.

Last week, the PSEi moved slow but managed to close 0.56 percent higher at 4,503.63.

“The momentum of last week’s general decline in the absence of a clear direction in the crisis, may carry over to the first two days. Tuesday will be the make-or-break point,” Calaycay said.

AB Capital Securities Inc.’s Maria Arlysa E. Narciso said failure to reach an agreement “may cause a financial contagion and a downgrade which will only plunge the US and even other economies into deeper problems.”

Calaycay, however, believes that any decline should give investors an opportunity to redefine their portfolio by beefing up their equity holdings.

He said the country may remain unscathed by the US debt crisis due to the sustained strength of its domestic fundamentals.

“Although not completely immune from external shocks, such as not but limited to a possible US default, the Philippine economy has consistently received an upgrade on both its foreign and local currency long term bond to just one or two notches below investment grade from Moody’s Standard & Poors and Fitch ratings,” Calaycay said.

Small cap or third liner issues dominated trading last week. Among these include GERI which rose 2.1 percent, BSC (69 percent), and PWR.

GERI is a unit of Alliance Global Group Inc. of real estate tycoon Andrew Tan and holds significant landbank in major tourist destinations in the country while PWR was recently taken over by Century Properties .

Narciso said earnings results may provide some cushion to keep the market from declining. In the absence of election spending which pushed profits higher last year, we can expect a moderate growth in results for the same period this year,” she said.

AB Capital Securities pegged the market’s support at 4,450.