Market to remain volatile

MANILA, Philippines - The week ended as expected with the US Federal Reserve proceeding with its rate hike.

Global markets rallied when the Fed announced its rate increase, the first time in a decade. Here at home, the market heaved a sigh of relief after the rate hike, rallying to as high as 6,939.45 but profit taking took place toward the end of the trading week.

The benchmark Philippine Stock Exchange index (PSEi), the local stock market closed the week at 6867.07, higher by 1.96 percent week-on-week over the previous week’s close of 6735.01.

Jonathan Ravelas, BDO chief market strategist, said that moving forward, the market is expected to range between 6,800 and 7,000 this week.

Luis Limlingan, managing director at Regina Capital, for his part, expects more market volatility.

“As such, we see the index trading between 6,690 and 6,910 but we will keep close watch on the lower end of the range as neutral to bearish technicals suggest possible extended corrections to as low as 6,600. Strategy for the week remains to trade the range as high volatility readings allow quick intraday trades between support and resistance,” Limlingan said.

Last week, the US Federal Reserve raised short-term interest rate for the first time in nearly a decade, in a move widely expected by investors and analysts. This put an end to the near-zero borrowing costs since the US financial crisis of 2008. It announced a quarter-point increase in the target rate for the federal funds rate to 0.25 to 0.5 percent.

“The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its two percent objective,” the US Fed said in a Dec. 16 statement.

With the rate increase, the dollar could appreciate further, increasing the debt burden on firms with debt denominated in the greenback, plus downward pressure on issues with dollar-denominated input costs.

Jason Escartin of 2TradeAsia said investors would benefit from firms with minimal negative exposure to the Fed’s rate hike.

As for capital flows, Escartin does not see significant widening of differentials in regional interest rates, as the move would be largely geared on ‘rebalancing.”

He believes that traders might partake on increased volatility in currencies and commodities, as some go risk-averse for stocks that are heavily tied on dollar-based debt and those whose business models are linked to slowing demand growth in China.