Online stockbroker Colfinancial.com said investors may consider locking in gains and conserve cash in the current market environment.
Colfinancial.com said inflationary pressure has become more pronounced with the prolonged conflict in the Ukraine invasion by Russia.
Colfinancial.com noted that since Russia and Ukraine account for a large share of numerous commodity exports, prices of oil, coal, nickel, wheat and corn have gone up significantly, causing higher inflation and hurting the global economic growth.
The higher inflation is also expected to eat into corporate earnings as a result of higher costs.
This is prompting the US Fed to be more aggressive in raising rates, with consensus now expecting the US Central Bank to raise rates by a total of 200 basis points this year from an earlier expected 50 basis points.
The threat of higher inflation is also causing US bond rates to go up and the dollar to strengthen, resulting to other global bond rates to also rise and currencies weaken including the peso, Colfinancial.com noted.
Colfinancial.com said the sharp rise in local bond rates makes stocks relatively unattractive.
“Note that the 10-year bond yield is already higher compared to the PSEi’s earnings yield.
Moreover, after factoring in the higher 10-year bond rate, our new end 2022 target for the PSEi index is now down to only 7,700 from 8,400 previously,” it said.
“At the market’s current level, capital appreciation potential is limited. Meanwhile a weaker peso has historically not been good for the stock market,” it added.
Colfinancial.com said investors should also look at buying opportunities when the market posts a sharp selldown
“If stocks are sold down sharply because of the continuous increase in commodity prices and interest rates, investors should be mentally prepared to deploy cash and buy battered stocks. Focus on larger capitalized, actively traded stocks as these are expected to be the first to rebound,” it said.
