General / Inter Market Analysis
The market has been lethargic in the past week despite some positive factors that should have pushed the market upward.
The positive performance of the US market the past couple of weeks should have given some impetus for some optimism. But what is occurring in the local market is quite the opposite. We saw the market being dampened by foreign selling, resulting in lackluster volume as most big players have opted to stay out. Also, we saw local share prices going down despite a strong Dow Jones.
Concerns about inflation, we think, is the cause of this disconnect.
In the past few months, investors have been ignoring the inflation factor because everyone was too focused on how sub-prime concerns was impacting on US markets.
Many had presumed that inflation in the country was a non-factor due to a strong peso which was at the lowest levels in recent decades. Any correction of the trend, it was thought, would not affect the general fundamentals.
This reasoning held for the first months of the year. But when crude oil prices broke past the psychological US$100 per barrel price and when the peso-dollar exchange started to consolidate in the P40 to P41 range, market players started to feel the heat. The recent food crisis in the country and other countries in the region compounded the problem.
The end result: foreign and local investors sold their holdings at any sign of market strength.
In the overall, we are convinced the strong fundamentals are still there. These issues will clear up when the supply stabilizes.
In the short term, we see a continuation of the volatility. This situation should change when there are sure signs that the US economy is on its way to recuperating. For now, we expect the market to continue on in its listless course.
For the local currency, we still see a stronger peso in the long term because we expect more weakness in the US dollar due to present rate cuts and recession woes, both resulting in low interest rates.
The US market is still in the middle of the first quarter earnings season and so far, the numbers have been mixed. As expected, tech stocks are doing well. But financial stocks are still a concern. Since some results in the financial sector are expected to release this week, wise is the investor who stays at the sidelines.
Incidentally, while all eyes would be on the April 24 Bangko Sentral policy meeting, we expect local rates to remain untouched. |
