Online stockbrokerage firm Colfinancial.com said investors should at best stay light in their holdings and sell on rallies.
“Rallies are opportunities to sell, and accumulate slowly only when stocks are sold down to attractive valuations,” it said.
Investors now have a cautious view toward the new administration given uncertainties about its economic policies, Colfinancial.com said.
This coupled with several non-political dragging factors dampen prospects for the local stock market as well.
“These include high inflation domestically and globally, the prolonged war in Ukraine leading to elevated commodity prices, a US Fed that is aggressively raising rates to fight inflation, rising bond rates domestically and globally, and the poor performance of US stocks, most of which are now trading more than 10 percent below their 52-week highs,” Colfinancial.com said.
Earlier, it said inflationary pressure has become more pronounced with the prolonged conflict in the Ukraine invasion by Russia.
Colfinancial.com also noted a higher chance for the index to break down below the 6,800 level than going up, as it continues to be dragged down by rising bond rates, higher 10-year US treasury yields, domestic inflation expectations and a weaker peso.
It said the incoming administration still has the opportunity to gain the confidence of investors — necessary for the strong performance of the economy and the stock market over the longer term.
“The new administration will need to appoint qualified economic managers with integrity who will be allowed to work independently to address current economic problems of high inflation, unemployment, and the government’s large budget deficit and rising debt levels,” Colfinancial.com said.
“Investors also want to see the new administration sustain the economic reforms of the Duterte administration that will help the country grow faster,” it added.
At the very least, it said, the new administration will inherit an economy with good foundations — a population that is in a demographic sweet spot, enjoying resilient and growing overseas Filipino remittances and business process outsourcing revenues.
It also cited the measures passed during the Duterte administration that will make it easier for the new administration to attract foreign investments, such as the Corporate Recovery and Tax Incentives for Enterprises Act as well as the amendments to the Trade Liberalization Act, Foreign Investment Act and Public Service Act.
“Expectations are also very low, with foreign investors consistently selling Philippine stocks since the middle of 2019, and with almost all index stocks trading at more than 1-standard deviation below their 10-year historical average P/Es,” Colfinancial.com said.
It added that in a high-inflation environment, the banking and power distribution sectors are among the most resilient to rising inflation, interest rates and regulatory risks.
