Stock market closes volatile 2018 in the red

THE stock market fell on Friday, closing out a volatile year that saw it hit a record high in January but then succumb to factors ranging from rising inflation and a weaker peso to the US-China trade war, among others.

The benchmark Philippine Stock Exchange index (PSEi) fell by 0.22 percent or 16.64 points to close at 7,466.02 while the broader All Shares inched up 0.08 percent or 3.72 points to 4,517.85.

Friday’s finish marked a 12.76-percent drop from the start of 2018 and was also a 17.6-percent plunge from the 9,058.62 peak recorded on January 29. It was the PSEi’s first annual loss since 2016.

“It is human nature to want a perfect ending to a story. But looking at the stock market’s performance, it may not be as good as what most hoped for, but it is also not as bad as some feared,” PSE Chairman Jose Pardo said in a statement.

Wall Street a factor

Regina Capital Development Corp. head of sales Luis Limlingan attributed Friday’s drop to profit-taking and said sentiment was also weighed down by volatility on Wall Street.

US markets looked set to close in the red on Thursday in a see-saw session but a late comeback allowed the Dow, S&P 500 and the Nasdaq to end up for a second straight day.

P2P Trade Online sales associate Gabriel Jose Perez, meanwhile, pointed to net foreign selling as having weighed on the PSEi.

Foreign funds bought P2.76 billion issues and sold P2.96 billion for a net foreign selling position of P198 million.

“Things to watch out for once we resume trading next Wednesday should be first how US markets perform over the long break — more so with how volatile trading has been recently,” Perez said.

“December inflation is also set to come out next Friday, so that’s something we should watch out for. A figure at the lower end of the Bangko Sentral ng Pilipinas’ recently released 5.2-6.0 percent range could give strength again to the index,” he added.

Regional markets were mixed as investors greeted Wall Street’s rally with caution. Tokyo fell by 0.31 percent while Hong Kong and Shanghai rose by 0.10 percent and 0.4 percent, respectively.

In Manila, sectoral results were mixed with the property, services, and financials the only gainers.

More than 1.29 billion issues valued at P5.66 billion were traded.

Winners led losers, 119 to 81, while 48 issues were unchanged.

Prospects for 2019

Looking ahead, Timson Securities Inc. trader Jervin de Celis said the market could climb back to the 9,000 level should local corporate earnings and the economy improve.

The same factors behind this year’s volatile trading — the US-China trade war, US Federal Reserve rate hikes and domestic inflation — are still expected to continue influencing the market.

“The trade rift between the two economies (China and the US) has to improve to restore investors’ confidence in risky assets like stocks. If they come to a win-win agreement early next year it will buoy the market sentiment,” de Celis said.

“On the other hand, if the talks on trade do not go well, it might further slow down the Chinese economy and this may dampen the market sentiment in the short run,” he added.

The US Fed’s announcement that it will likely hike rates by only two times next year instead of three, de Celis continued, will help attract foreign funds back to emerging markets such as the Philippines.

“We may see a comeback of foreign investors,” he said.

Consumer spending, meanwhile, is expected to pick up in the second quarter amid mid-term election spending.

“The scary possibility in 2019 is an inverted yield curve in the US, which may signal or cause a recession,” de Celis also said.

“It’ll send rippling effects across financial markets and may drag our index below 7,000 again but if our economy remains resilient then the bright side of that story is that foreign funds may flow back into our index especially when the Fed decides to implement expansionary monetary policies to stimulate the economy,” he added.

For Regina Capital’s Limlingan, the PSEi could be boosted by the mid-term elections, lower inflation, continued crude oil price drops and a stable monetary policy.

Challenges could arise from developments in the US-China trade war, a widening trade deficit that could lead to a further depreciation of the peso, and a deceleration in global growth.