Philippine Market Outlook March 25, 2019

MARKET OUTLOOK

Local shares may edge higher this week, still supported by the central bank’s decision to keep interest rates steady last Thursday.

The general sentiment is still cautious but perhaps, the close above 8,000 last week will trigger some excitement which could propel it higher.

The PSEi would have to breach its next resistance level at 8,140 to confirm that the rally will keep going.

The central bank and the Federal Reserve’s decision to keep rates unchanged will keep borrowing costs steady, which could translate to improved capex deployment.

This should prod investors to scout for investment opportunities, possibly in condo units that can be leased out, affordable housing, even franchising or store operations.

Similarly, those in capital-intensive industries would benefit, as infra-based projects are expedited.

However, concerns about the delay in enactment of the P3.757-tril 2019 budget may be the biggest obstacle for the market to go higher.

Analysts have already adjusted GDP (gross domestic product) growth targets because of this delay.

Economic managers revised downwards economic growth target for the year to 6% to 7% from the original 7% to 8%. Growth could even slow to 4.2% to 4.9% this year if the budget were enacted as late as August. The growth target for the 2020 was also downgraded to 6.5% from 7.5%, while the growth targets for 2021 and 2022 remained at 7% to 8%.

Because of the May elections, the passing of the budget could be pushed further.

In the coming quarter, investors are to consider sectors that would do well in the period surrounding the May 13 midterm elections, especially those in consumer and investment spending.

Improved travel should also merit listed shares with tourism-related business models, either in accommodation or entertainment (gaming). Demand-driven summer season would also boost power or energy-related stocks.

The main index’s support is placed at 7,900-8,000, with resistance at 8,140-8,350.