Online stockbroker Colfinancial.com said stock investors should remain defensive even after interest rate cuts.
This developed as share prices closed lower Tuesday on continued risk aversion. The peso closed up.
The Philippine Stock Exchange index (PSEi) was down 70.26 points to 6,501.34, a 1.07 percent drop.
The broader All Shares index was down 25.34 points or 0.72 percent to 3,484.74.
Losers edged gainers 102 to 93 with 35 stocks unchanged. Trading turnover reached P5.27 billion.
The peso closed at 57.97 to the dollar, up from 58.11 on Monday.
The currency opened at 58.07, an intraday low, and hit a high of 57.90. Trading turnover reached $1.24 billion.
Colfinancial in an investors note said good data the past few weeks were not enough to offset the bad, keeping the stockbroker cautious in the short term.
Bangko Sentral ng Pilipinas governor Eli Remolona earlier said the central bank might begin cutting its benchmark rate by 50 basis points this year starting with a 25 basis points cut in August.
This was after BSP reduced its 2024 risk adjusted inflation forecast to 3.8 percent from 4 percent previously.
Colfinancial noted BSP’s pronouncement caused the local 10-year bond rate to go down sharply to 6.62 percent from 7.03 percent. In the US, the lower-than- expected inflation and the increasing dovishness of the Fed led to the decline of the US 10-year bond rate from 4.7 percent to 4.42 percent.
The dollar index also weakened to 104.50 from 106.22, fueling a rebound in the local stock market and the Philippine Stock Exchange index (PSEi) rallying from its May low of 6,511.93, Colfinancial.com noted.
However, economic growth is weakening in the Philippines and in the US, the stockbroker said.
The Philippines’ first quarter GDP growth of 5.7 percent was slower than consensus forecast of 5.9 percent, it said.
The household consumption growth of 4.6 percent was the slowest since the first quarter of 2021.
Colfinancial said in the US, there were numerous signs the economy is weakening.
Colfinancial said historically, the stock market did not automatically go up despite rate cuts.
“Since 2010, the BSP went through three rate cutting cycles — 2012, 2016 and 2019. During those three times, the stock market only went up significantly in 2012. In fact, it even went down sharply following the 2019 rate cuts because of the worsening US-China trade war and the onset of the COVID-19 pandemic,” Colfinancial said.
Stocks also declined following the Fed’s rate cuts, it noted, due to the Fed’s poor track record of successfully controlling inflation without triggering a recession.
Colfinancial saida potential recession and bear market in the US is bad for local stocks since the Philippine stock market has always suffered from a contagion.
“Because of the risks that come with weaker economic growth both here and in the US, investors should continue exercising caution despite indications that interest rates are going down soon. We continue to recommend a more defensive strategy — preferring stocks that belong to more defensive sectors such as power, utilities, telcos, and consumer staples,” the stockbroker said.
“Moreover, if the stock market continues to go up in the short term, manage risk by taking profits on stocks that have gone up and are no longer cheap in terms of valuation,” it added.
Mikhail Philippe Plopenio, analyst at Philstocks Financial Inc., said stock investors yesterday digested the latest clues on the BSP’ monetary policy outlook.
“Primarily, investors digested the results of the BSP’s latest survey which showed majority of respondent analysts project policy rates to remain unchanged in the third quarter,” Plopenio said.
“They also digested BSP senior assistant governor Iluminada Sicat’s remarks, saying that upside risks to inflation remain, causing the BSP to remain restrictive with its policy,” he added.
Most actively traded Ayala Land Inc. was down P1.35 to P27.10. International Container Terminal Services Inc. was down P11.40 to P338.60. BDO Unibank Inc. was up P0.20 to P135.20. Aboitiz Equity Ventures Inc.was down P1.70 to P36. SM Prime Holdings Inc. was down P0.15 to P27.05. Jollibee Foods Corp. was down P9.60 to P220.20. SM Investments Corp. was down P8.50 to P871.50. Ayala Corp. was down P6 to P614. Bank of the Philippine Islands was up P1.90 to P123. Metropolitan Bank and Trust Co. was up P1.30 to P69.30.
