Market to climb on window dressing

MANILA, Philippines - Last-minute window dressing helped push stocks higher last week and may continue to do so this week, a move which could boost the benchmark index during the last two trading sessions for the year.

“Bets for 2016 may have been well put in place, with last minute window-dressing boosting year-to-date winners,” noted Jason Escartin of 2Trade Asia.

He said an overwhelming number of stocks are trading below their 200-day volume weighted moving averages, suggesting underlying may be bearish going into the new year.

Against this backdrop, net foreign selling continues to hound the market.

Data from the Philippine Stock Exchange showed net foreign selling in this month so far has reached P6.13 billion with year-to-date net selling at P59.1 billion compared to net buying of P55.45 billion for the whole of 2014.

Given this lingering trend, Escartin advised investors to trade cautiously and to watch out for immediate support at 6,750 to 6,800, with resistance level at 6,900.

Last week, share prices closed higher as players factored in the US Federal Reserve’s 25 basis point hike. Investors, likewise, took into account indications for gradual easing.

As such, the local stock barometer, the benchmark Philippine Stock Exchange index (PSEi) closed 132 points higher at 6,867, up 1.96 percent week on week and buoyed by the Holding Firms index, which rose 2.75 percent; Industrials index, which went up 1.43 percent and Financials, which gained 1.33 percent.

However, turnover remained modest at P5.32 billion.

Moving forward, Escartin said investors should expect a steady pace of Fed hikes.

“After raising benchmark rates the past week, the Fed estimates the median to increase to 1.4 percent in 2016, 2.4 percent for 2017, 3.3 percent for 2018, signaling sustained pace of increases,” Escartin said.

This could mean further appreciation of the dollar, increasing the debt burden on firms with debt denominated in the greenback, plus downward pressure on issues with dollar-denominated input costs. 

“Check on local firms’ exposure to the currency to guide trades.  Firms with minimal negative exposure to the Fed’s rate hike may even be favored,” he noted.

Despite the Fed rate increases, he does not see a significant widening of differentials in regional interest rates, as the move would be largely geared on ‘rebalancing’. 

“For now, traders might partake on increased volatility in currencies and commodities, as some go risk-averse for stocks that are heavily tied on $-based debt and those whose business models are linked to slowing demand growth in China,” Escartin said.

Despite some cautious optimism, the previous estimates of analysts and economists – that the index would hit the 8,000 mark – are clearly no longer possible.