Stock market to slow down in last trading days of 2016

CEBU, Philippines - The local stock market is seen to trade below the 7,000-mark in the last three trading days of 2016.

In an interview, Cebu Bankers Club past president Maximo Eleccion said the recent Fed rate hike caused the "down" state in the market.   

The Philippine Stock Exchange index (PSEi) had moved back below the 7,000-level after the much anticipated Fed rate hike.

Eleccion said foreign investors had moved their funds back to the US.

But despite this, the bank official underscored his bullishness on the Philippine stock market looking at a long-term perspective.

"We're still bullish on the stock market because of the performance of local corporations which reported double-digit increase in their profits," Eleccion said.

Last December 14, the US Federal Reserve raised interest rates for the second time in two years and possibly three more times in 2017.

The PSEi closed 0.36 percent lower to 6,563.67 on Friday, touching deeper the 6,5000 territory.

This was the benchmark's lowest level since January this year.

Financial markets are closed yesterday and on Friday, which are declared holidays.

In its December 2016 research, COL Financial said the PSEi is now down 16.3 percent from its July peak of 8,102.30.

"In fact, it has erased all its gains for the year 2016. The three main factors responsible for the sell-off are President Duterte’s plan to separate military and economic ties with the US; the surprise victory of protectionist Donald Trump in the US presidential election; and the growing likelihood of a US Fed rate hike," COL said. The third factor cited had already happened.

"We are actually excited with President Duterte’s pivot to China as a growing contribution from China can easily offset weaker FDIs (foreign direct investments) and tourist arrivals from the U.S," the stock brokerage firm said.

In absolute terms, China’s outbound investments and tourists going to the Philippines are quite small relative to other Southeast Asian countries. The most serious threat of weaker ties with the U.S. is a possible weakness of the local BPO sector given that around 70 percent to 80 percent of BPO employers are US based companies.

"However, we do not expect a large number of BPO jobs to leave the country given the significant wage differential between Philippine and U.S. agents of around US$8.50/hour," COL said.

We would also like to stress that a weaker peso should benefit, not hurt the Philippine economy since the Philippines now enjoys a current account surplus equivalent to 2.6 percent of GDP. The main beneficiaries of a weak peso are the OFWs, the BPO sector, and exporters.

The peso could weaken to the P51 to P51.50 against the dollar by the end of 2017, analysts had said.

The local unit touched the P50-level twice since November, due to hot money outflows and a stronger dollar. (FREEMAN)