PSEi seen to trade within 6,000 - 6,200

MANILA, Philippines - The local benchmark index is expected to trade within the 6,000 to 6,200 band this week as investors await reports on corporate earnings and more indications regarding the US Federal Reserve’s tapering.

The recent rally has increased the premium on local stocks compared with regional peers, a development that might trigger short-term selling, analysts said.

“We expect the market to trade sideways this week given that near-term catalysts will depend on global market sentiment,” said Gregg Adrian Ilag, equity analyst at AB Capital Securities Inc.

“Sessions could either range-trade within 6,000-6,200, or trounce beyond the resistance mark towards 6,400, bulk of which will depend on investors’ optimism on economic growth and corporate earnings prospects this year,” said Grace Cerdenia, analyst at brokerage firm 2Trade-Asia.com.

For Freya B. Natividad, investment analyst at Papa Securities Corp., there will be a continuation of last week’s uptrend, albeit at a slower pace, closer to the 6,200 level.

Week-on-week, the Philippine Stock Exchange index (PSEi) rallied 1.71 percent or 102.52 points to 6,113.66, reversing a decline in the previous period.

In particular, net foreign buying hit P286 million, turning around from the previous week’s net foreign selling of P525 million.

Foreigners returned to the local bourse amid indications that US Fed’s tapering will remain gradual. Local firms also reported strong headline profits, encouraging investors to pick stocks.

Analysts said results on corporate earnings and global sentiments will be the main drivers of trades this week.

“Investors will look for hints to the future changes in monetary policy which should drive short-term market returns,” Ilag said.

However, moments of pullback will likely temper gains, Natividad said.

“The PSEi is now trading at 16.45x 2014 price-to-earnings ratio versus 13.31x peer median. We find premium valuations susceptible to externally driven selloffs and slower earnings growth,” Ilag said. But the retreat will be shallow given the strong 6,000 support level.

For investors, analysts advised sector-specific purchases during pullbacks.

“Preference might stay sector-specific, specifically those with solid fundamentals that would enable listed companies achieve double-digit returns,” Cerdenia said, adding that consumer, service, gaming and infrastructure-related entities are meriting attention.

“We also think that consumer, property and gaming stocks will continue to post robust headline profit growth,” Ilag said.