Stock market may remain weak this week

MANILA, Philippines - The market may trade within the 7,700 to 7,850 levels this week, with sentiment still weak which could drag the market toward the 7,500 level, analysts said.

“Only a move back toward the 8,000 level will call the bulls back to play,” said Jonathan Ravelas, chief market strategist at BDO Unibank.

In a briefing on Friday, Ravelas said the market would generally remain tentative between now and the next meeting of the US Federal Reserve on Sept.20 and 21.

“We’re looking at 7,600 at the end of the quarter. Between now and (the September meeting), the market will remain tentative,” Ravelas said.

However, the latest US employment growth rate slowed more than expected in August after two months of gains, which could rule out an interest rate increase from the Federal Reserve this month.

US Labor Department data showed that nonfarm payrolls rose by 151,000 jobs last month following July’s 275,000 increase, with hiring in manufacturing and construction sectors declining.

Despite the uncertain environment, Ravelas said the benchmark Philippine Stock Exchange index (PSEi) may still hit 8,000 by year-end.

“8,000 by year-end is still possible. What can allow investors to come back again – cheaper valuations. People will start bargain hunting. Look at companies that will be cheap,” Ravelas said.

Last week, the PSEi ended 0.49 percent lower week-on-week to 7,807.42, its fourth straight week of decline.

“The market barometer PSEi managed to hit an intra-week low of 7,646.30 on profit taking activities and rebalancing of portfolios. Foreign and local investors took US Fed chair Yellen’s statement as an excuse to capitalize on their gains. She said tighter labor markets over time would push inflation back to the central bank’s two percent goal, setting up a rate hike this year, if jobs data remain strong,” Ravelas said.

For his part, Victor Felix, equity analyst at AB Capital said the market seems to have already fully digested corporate earnings, and has deemed that high valuations were not justified by the results.

“As such, foreign funds are now pulling out of our market, so as to let it cool off and reach healthier valuations. At the height of the bull-run, our market was at 24 x P/E (price earnings ratio) levels, the most expensive in the region. We can expect the index to reach a healthier 18x to 19x P/E level as this downtrend continues,” Felix said.

Moving forward, he said investors have a lot of events to watch out for this month, with several meetings taking place such as that of the G20 leaders, the Bank of England, the Bank of Japan, the Federal Reserve, and the Organization of Petroleum Exporting Countries.

“Analysts and investors will be tracking these events closely, to see any cues for further market guidance,” Felix said.