IMPROVED sentiment could lift the stock market higher this week should a truce in the Middle East continue to hold and with June inflation likely to remain below target, analysts said.
An improvement in domestic factory activity and positive developments ahead of a July 9 US tariff deadline could provide an additional boost, but the analysts also warned that matters could turn south given continued uncertainties.
After a battering last Monday as the US joined Israel in attacking Iran, the Philippine Stock Exchange index (PSEi) ended the week up by 1.08 percent at 6,408.27 as Israel and Iran subsequently agreed to a truce.
Year-to-date, however, the benchmark index remains down by 1.85 percent.
“Market mood [this] week could be cautiously optimistic” given the fragile truce between Israel and Iran, Philstocks Financial Inc. research manager Japhet Tantiangco said.
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Other external developments could also influence sentiment, he added, particularly with a July 9 tariff deadline set by US President Donald Trump looming.
“Hopes that the said deadline would be extended may give sentiment a boost,” Tantiangco said.
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“On a positive note, the easing of global oil prices and the rebound of the local currency may continue to provide support to the local bourse,” he continued.
Optimism over trade talks between the US and China lifted the benchmark S&P 500 index and Nasdaq to new record highs on Friday, which could also provide an additional stimulus for the PSEi.
“Investors are also expected to watch out for the June S&P Global Philippines Manufacturing PMI (purchasing managers’ index) for clues on the local economy,” Tantiangco said.
Factory activity stalled in May with the PMI falling to 50.1, just shy of the threshold separating an expansion from a contraction, from 53.0 in May. Data for June will be released by S&P Global tomorrow.
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Tantiangco said the local market remained undervalued with a price-to-earnings ratio of 11.6 times — significantly below the five-year historical average of 17.3x and the regional average of 16.2x.
Still, he said that this week’s trading would test the validity of the PSEi’s return to 6,400 territory after spending almost all of the month below that level.
“If it manages to keep its position above 6,400, then this will be converted into its new support while next resistance would be the 200-day EMA (exponential moving average) followed by the 6,800 level,” Tantiangco said.
Unicapital Group research head Wendy Estacio-Cruz, meanwhile, said the peso’s strength and expectations of low June inflation would also be key factors in shaping market performance.
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“In our view, June inflation will likely stay low at around 1.6 percent, slightly higher than last month’s 1.3 percent but lower than last year’s 3.7 percent given a surge in oil prices but likely still within the 2-4 percent target,” she said.
Online stock brokerage 2TradeAsia.com noted that the situation remained “fragile” despite the market’s gains last week.
It said that global investors were continuing to wrestle with growth concerns, the US Federal Reserve’s cautious stance regarding interest rate cuts and trade uncertainties.
“Our view remains conservative: while some markets are pricing in a July [Fed] cut, a prudent assessment of tariff-induced inflationary pressures requires more time and data,” 2TradeAsia said.
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“Investors must grapple with a monetary policy environment increasingly constrained by geopolitical realities and the unpredictable, yet impactful, weaponization of trade,” it added.
The government’s move to reduce this year’s economic growth target, to 5.5-6.5 percent from 6.0-8.0 percent, was said to reflect broader global headwinds.
2TradeAsia, however, acknowledged that the Bangko Sentral ng Pilipinas remained “accommodative and divergent from the cautious stances of its peer regional central banks,” which could support growth momentum.
The impending July 1 implementation of a reduced stock transaction tax and a stronger project pipeline in the latter half of the year, meanwhile, are “catalysts for selective engagement, not indiscriminate buying.
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