Philippine stocks managed to close higher on a holiday shortened trading week.  Investors continued to take took their cue from movements in the global markets abroad, which were relatively quiet.  World markets are showing signs of a near term bottom after digesting so much negativity from the sovereign debt crisis in Europe.   Notwithstanding, local stocks benefited from an upward adjustment made on the country's GDP growth projections for this year.  This tempered profit-taking pressures that would have been induced by the continuing worries in Europe.  The positive bias was also inspired by the buoyant trading on conglomerates, which picked up the slack in the services and mining counters.

 

The local main composite index closed at 3,335.48, a 70.04 points or 2.14% advance from last Friday's close.  The broader All shares index also advanced by 40.66 points or 1.95% week on week to end at 2,126.60.  All sub indices were in the green with the Holdings index having the biggest advance of 3.96% week on week.   The conglomerates sub sector was led by the strong gains of Aboitiz Equity Ventures (AEV) and Ayala Corporation (AC).  AEV surged by 9.1% week on week to P21.00.   The property index also had a relatively strong performance last week led by gains in Megaworld Corporation (MEG), Filinvest Land Inc. (FLI) and Vista Land and Lifescapes Inc. (VLL).

 

Despite showing signs of a near term bottom after reaching technical oversold levels, share prices could not have enough gas to make a significant run up.  The biggest drag on investors' confidence is the concern that Europe’s sovereign debt crisis may spread.    Billionaire George Soros recently warned that Europe’s fiscal crisis may push the global economy back into a recession.  An extended rise in sovereign debt is seen to make credit more expensive and curtail investment and growth globally.  As of the end of the first quarter, data has shown that the global economic recovery remained robust in most countries, with the exception of Western European nations where it had stagnated.  The World Bank has projected global growth at 3.3 percent in 2010 and 2011.  In the US, the world’s largest economy is seen to continue growing in the second half of the year.   The US index of leading indicators rose 0.4 percent in May. 

 

On the local front, the government announced an upward revision on economic growth projections for this year.  The Development Budget Coordination Committee (DBCC) said that they expect the Philippine economy to grow by between 5 percent and 6 percent in the full year 2010.  Growth for the remaining quarters of the year is seen to range at between 4 percent to 5 percent per quarter.  The upward revision in forecast was due to the surprising 7.3 percent growth posted in the first quarter, which was the highest first-quarter growth recorded in three decades.   The DBCC is optimistic with their projections as they see a better-than-expected global recovery, improved level of business and consumer confidence, as well as higher government spending on capital outlay and social services.

 

There are no major local leads that could move the local market next week.  As a result, we may continue to look at external developments for guidance.  Investors still have an eye on developments in Europe at the moment.   Besides Europe, a major event to be closely watched is the US Federal Reserve's Federal Open Market Committee's (FOMC) two-day meeting on interest rates.  We are not expecting any change in US rates and we believe the Fed will maintain its stance of keeping interest rates low.   However, investors should listen closely to the comments of the Fed for future directions of US monetary policies.  On the local front, investors will be studying the in coming administration's economic plans and key appointments of personnel.   The PSEi is currently on its fifth attempt to break out of its major resistance level of around 3,350.  Volume in the past couple weeks have been dwindling and could be an indication that the resistance may have to stay for the moment.  Short term technical oscillators have already bounced up from oversold levels and are losing steam due to the thinning volume.  Downside risk is also small as we find immediate support at the 50-day exponential moving average of 3,240.  The PSEi's Bollinger Bands are already 32% wider than normal and pointing towards a consolidation in the coming sessions.