Investors are likely to remain on the sidelines following the surge in speculative buying on third-line oil and mining issues amid the potential impact of the rising oil prices.
Volatility in oil prices has been driven by lower inventory levels in the U.S. on larger than expected drawdowns and potential supply disruptions from tensions over Iran, the world’s fourth largest oil exporter, says AB Capital Securities.
“With the Philippines importing more than 90 percent of its oil requirements and the economy having a reportedly high intensity of petroleum usage to generate each unit of GDP output, our economic growth may be imperiled towards the second half.”
The government has already warned the public about higher crude and refined petroleum prices as oil companies have pronounced plans of successive hikes of as much as 50 centavos per liter on fuel prices over the next several weeks.
With the expected rise in prices, “we won’t be surprised on any upward adjustment in inflation targets by mid-year. This may eventually force the Bangko Sentral ng Pilipinas (BSP) to adopt a more restrictive interest rate policy in second half of the year.
BPI Securities has noted that the market corrected following two days of strong gains which saw the Phisix breaching the 2270 resistance.
Leading the market's decline were Ayala Land, Inc. and SM, both of which had racked up steep inclines last week.
“While buying sentiment remains strong, we may still see this correction continuing this week particularly if PLDT ADR trades lower,” says BPI Securities.
Last week, trading mainly focused on commodity-related issues, with selected blue chips such as Ayala Corp. (AC up 5 percent) and PLDT (a record of P2,000 per share) leading the index’s rise.
AB Capital noted that international oil and gold prices continued to shoot through the roof, fuelling speculative interest on third-liners.
“Index issues moved up slightly on account of better first quarter budget deficit numbers, overcoming fears of higher business costs and adverse consumer spending from rising crude prices.”
The PSEi gained 39 points up by 1.7 from the previous week’s to close at 2,263 its highest since August 1999.
“While everybody waited for a psychological resistance at $600 per ounce, gold prices charged without hesitation to reach over $637 per ounce, fuelling a buying frenzy on the biggest local mine players: Philex Mining (PX, PXB), Lepanto Consolidated (LC, LCB), Manila Mining (MA, MAB), Apex Mining (APX, APXB) and Atlas Mining (AT).”(Edu Lopez)