In the meantime, take note of the coming Ghost Month

Initially, it looks like every inch of the market’s climb is a battle now. But there is also a good chance that it may turn out better.  

To recall, the market closed at 6,646.44 in January, up 3.0% or 196.40 points from its closing index of 6,450.04 in December 2023. Four of the six counters of the market provided the boost. These were the Financials, Holding Firms, Property, and Services sectors with their respective growth increases of 8.4%, 3.7%, 2.3%, and 0.8%. Of note, gross domestic product (GDP) growth for 2023 was 5.6%.

The market continued its climb in February when it closed at 6,944.71, up by 4.5% or 298.27 points. The push largely came from the advances in the Financials and Services sectors, and to a small extent from the Industrial and Holding Firms sectors. As of writing, the market was up 7.7% or 494.67 points up from where it started for the year. Also, the Bangko Sentral ng Pilipinas (BSP) maintained for the third time its key policy rate at 6.5%. 

Things started to change by the month of March. The market started to slip. It closed lower at 6,903.53, down 0.6% or 41.18 points. Five of the six sector indices mirrored the market’s month-on-month decline with the Mining & Oil, Industrial, Holding Firms, Property, and Financials indices decreasing by 4.6%, 2.6%, 1.4%, 1.2%, and 0.7%, respectively. The loss, however, was not that big enough to significantly affect the market’s gains since the beginning of the year.  

On the other hand, foreign transactions now accounted for 48.0% of the total market trades during the month. This was remarkably higher than its earlier market participation of 41.8% or so previously.

The market’s downward trend continued in April. It closed for the month at 6,700.49, down by 2.9% or 203.04 points.  

By this time, the market’s performance was reduced to only 3.9% or 250.45 points above its starting level at the start of the year. Responsible in the market’s decline came from the big losses suffered by the Property, Holding Firms, and Industrial sectors due to the continued selling stance of foreign investors.

With basically the same reasons, the market closed again lower for the third time to 6,433.10 in May, with a monthly loss equivalent to 4.16% or 267.39 points.  

And, for the fourth time, the market continued to drop further in June. It closed at 6,411.91 which also sent the market deeper into negative territory to as much 0.59% or 38.13 points on a year-to-date basis.  

Among the technical and fundamental factors that pulled down the market into negative territory all these times was mostly due to inflation jitters, here and abroad; sometimes it is additionally affected by ongoing geopolitical conflicts. Five, if not, all of the six counters of the market performed badly because of the net selling activities of foreign investors whose market participation at one time also rose abnormally high to 63.32%. 

Analysts now place the market’s technical support – resistance levels as follows: “Support 1: 6,353.51; Resistance 1: 6,512.57” and “Support 2: 6,158.48; Resistance 2: 6,738.88.”

Three market possibilities

The initial trading results of the market for this first two weeks of July seem to be no different from what it has been. Its every inch of climb is a battle. This is because, while it easily got back to 6,492.75 at the end of the first week, it is still struggling with a deficit by last Thursday, July 11.

Nevertheless, I remember from a study I read that there are three possible directions by which the economy may turn to be this year. And as we know, the market’s direction is somehow influenced by its level of confidence on the direction of the economy.  

Looking back, the Philippine economy largely grew in 2023 due to the “resumption of in commercial activities, public infrastructure spending, and growth in digital financial services.”

The transportation and storage sectors grew by 13%, construction by 9%, and financial services by 9%. The country’s trade deficit narrowed, although it “remained elevated at $52 billion due to slowing global demand and geopolitical uncertainties.” 

Lastly, the economy grew faster than other economies in Southeast Asia and ended the year with 5.6% growth.  

Going back to the study I mentioned, its first scenario projects that the economy will have a slower growth rate considering existing challenging conditions “such as declining trade and accelerated inflation which will force government regulators to “keep key policy rates high at about 6.5 percent and dampen private consumption, leading to slower long-term growth.” In this case, the market might remain to trade below 7,000.

The second scenario projects that “inflation moderates and global conditions turn out to be largely favorable” while the investment environment and regional trade demand grow stable. The market is estimated to likely trade as high as 8,000 or over.

In the third scenario, the economy will have a GDP growth of at least 6.1% while inflation slows down. A lower interest rate regimen is adopted and more incentive programs are offered to boost productivity. This may result in driving the market to soar over 9,000.  

By the way, all of the above scenarios assumed that all existing geopolitical conflicts will remain at low level.

In the meantime, take note of the coming Ghost Month. – Rappler.com

(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.   You may reach the writer at densomera@yahoo.com)