Market cautious amid slow economic recovery outlook

Share prices are expected to move sideways this week with a downward bias as investors are starting to lose confidence on the quick recovery of the domestic economy.

Analysts said expectations from government economic managers that the first quarter gross domestic product figures would remain negative were making investors cautious on the market. The GDP contracted 9.5 percent in the full of 2020 and dropped 8.3 percent in the fourth quarter. But the contraction was in line with market expectations, 

The rising number of COVID-19 cases in the Philippines, with many provinces reverting to much stricter quarantine measures, and the uncertainty over the vaccine rollout are also adding to investors’ worries.

“Investor sentiment remains cautious as elevated valuations, signs of a tepid recovery are feeding bearish sentiment that could worsen if earnings disappoint and the government fails to contain the outbreak,” BDO Unibank Inc. chief investment strategist Jonathan Ravelas said.

“The week’s close at 6,612.62 signals further tests towards the 6,500 levels in the near-term,” Ravelas added.

But COL Financial expects the Philippine Stock Exchange Index to end 2021 at at 8,300 points despite the current negative trading sentiments.

COL Financial research head April Lee-Tan said the outlook on the domestic economy for 2021 was not very attractive given the poor prospects for consumer and business spending, and delays in the passage of tax cuts.

“However, the stock market can still go up on hopes that the availability of COVID-19 vaccines will help economic conditions normalize faster. Moreover, valuations of stocks are still reasonable given low interest rates,” Tan said.

The stock market may also benefit from the flow of foreign funds into energy markets, like the Philippines.

The PSEi last week sank 6.2 percent to 6,612.62, its lowest close in nearly three months, as investors turned cautious over the recovery of the domestic economy.

Global stocks, meanwhile, finished an ugly week with another volatile session Friday as the buying frenzy over GameStop and some other equities resumed amid stepped-up scrutiny from regulators.

Major US indices fell about two percent following similar drops in Europe and Asia, while investors shrugged off some positive developments on coronavirus vaccines.

Analysts said there were factors besides the drama around GameStop influencing the pullback on Friday and earlier in the week.   

These include concerns over lofty equity valuations given the economic weakness caused by COVID-19. Investors are also worried US fiscal stimulus may lag market expectations after President Joe Biden’s $1.9-trillion package garnered a skeptical reception in Congress.

But much of the focus landed on questions over GameStop, which soared nearly 70 percent after Robinhood and other trading platforms lifted restrictions on trading the equities.

Shares of GameStop, AMC Entertainment and others have been on a tear much of the week as investors organized over Reddit targeted the equities on Robinhood and other platforms to combat hedge fund short-sellers who were betting on lower prices.

“This is all a de-risking event by hedge funds, because of the loss that they have taken from the stocks like GameStop,” said Karl Haeling of LBBW. With AFP