Philippine shares are bound for a rough, ‘volatile’ trading week after Moody’s downgraded the US sovereign credit rating given its $36 trillion debt.
The US credit rating downgrade “is likely to increase volatility in local financial markets, raise borrowing costs for local companies, and affect currency values,” Jonathan Ravelas, managing director from eManagement for Business and Marketing Services, said.
“Local companies may face higher financing costs, negative market sentiment, and changes in trade dynamics with the US,” Ravelas said.
The downgrade threatens the safe haven status of the US that could result in adjustment of spreads on other countries’ sovereign debts that use the US Treasury yields as benchmark, Michael Ricafort, chief economist from Rizal Commercial Banking Corp., said.
The market is coming from a six-week winning streak, with the gains made last week sparked mainly by the progress between the US and China’s trade relations, said Japhet Tantiangco, an analyst from stock brokerage Philstocks Financial Inc.
Tantiangco noted the market has so far managed to trade above its 200-day exponential moving average.
“Noticeably however, is the thinning gains of the market as selling pressure strengthens amid investors’ caution,” he added.
On Friday, the benchmark PSEi rose 0.11 percent to 6,465.53.
Tantiangco, however, still deems
the market undervalued despite the six weeks of gains, which suggests ripe opportunities for bargain hunting.
Moody’s reported on Friday it downgraded the US’ sovereign credit rating to Aa1 from Aaa.
Moody’s first gave the US its pristine “Aaa” rating in 1919 and is the last of the three major credit agencies to downgrade it.
The cut by one notch follows a change in 2023 in the agency’s outlook on the sovereign due to wider fiscal deficits and higher interest payments.
Online stock trading platform 2tradeasia.com said the Philippine market is facing a new horizon in the aftermath of the May 12 midterm election.
The question now is whether the momentum will continue to build or stall.
2tradeasia also notes that in the coming weeks the MSCI rebalancing in early June might provide either a market exit or a window of opportunity.
On Tuesday, MSCI said it is adding Aboitiz Equity Ventures Inc. on its MSCI Philippines Index with Bloomberry Resorts Corp. and Wilcon Depot Inc. to be removed.
The midyear narrative is forming, which calls for patience and selective trade as the critical factors for investor decision, 2tradeasia said. (With additional report from Reuters)
