Stocks seen to pull back after robust Q2 results

PHILIPPINE SHARES may move sideways this week on profit taking after its last week’s rally as investors wait for more economic catalysts that would point to sustainability.

The Philippine Stock Exchange index (PSEi) posted gains on Friday, inching up by 39.23 points or 0.57% to close at 6,863.86, while the broader all shares index went up by 15.80 points or 0.43% to 3,635.57.

Week on week, the PSEi surged by 164.2 points or 2.45% from its close of 6,699.66 on Aug. 12.

“The local market has been riding on bullish momentum fueled by confidence towards the strength of the corporate sector evidenced by the robust results seen in our second-quarter and first-half company reports,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

China Bank Securities Corp. Research Director Rastine Mackie D. Mercado said in an e-mail the market maintained its strength during Friday’s session “as buying appetite continued to be robust” despite the central bank’s rate hike and continuing hawkish stance.

The Monetary Board raised its benchmark interest rate by 50 basis points (bps) at its Thursday meeting.

Meanwhile, interest rates on overnight deposit facilities were raised to 3.25% and lending facilities to 4.25%.

The Bangko Sentral ng Pilipinas (BSP) forecast for this year’s baseline shifted higher as it expected inflation to breach the 2-4% target at 5.4%, while forecasts for 2023 and 2024 declined to 4% and 3.2%, respectively.

For this week, Mr. Mercado said that he expects the market to move sideways as investors are expected to pocket profits from last week’s rally.

“We don’t think that the market will continue to run away given that macro uncertainties (though easing) continue to remain high. As such, we think that the market is highly susceptible to a pullback in the coming weeks given the extent of the rally thus far in August. We expect investors [to] lock in some of those gains,” Mr. Mercado added.

Mr. Tantiangco said: “Next week, investors are expected to watch out for catalysts that would point to the sustainability of the strong results we’ve seen in the [first] half. Lack of such is seen to lead to profit taking.”

He added that: “macroeconomic concerns are expected to challenge the extension of the local market’s rally.”

These concerns include the hawkish outlook of the US Federal Reserve, the possibility of more rate hikes by the BSP, further widening of our balance of payments deficit (BoP), and lingering supply problems in agricultural commodities.

In the data released by the BSP on Friday, the country’s BoP deficit widened to $1.819 billion in July, a reversal from a year ago’s $642-million surplus.

This is the widest deficit posted in 17 months or since $2.019 billion in February 2021 and it is also higher than the $1.574 billion gap in June.

Meanwhile, Federal Reserve Chairman Jerome H. Powell will give a speech on US economic outlook at the annual global central bankers’ conference in Jackson Hole, Wyoming on Friday from which investors may get more cues on the Fed’s actions in the coming months.

China Bank Securities’ Mr. Mercado placed the PSEi’s support at 6,720 and resistance at 6,900-7,000 levels, while Philstocks Financial’s Mr. Tantiangco put support at 6,741.47, the local market’s 200-day exponential moving average, and resistance at the 7,000-7,100 range. — Justine Irish D. Tabile with Reuters