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Flat trades expected in face of MSCI rebalancing

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The Philippine Stock Exchange — PHOTO: Santiago J. Arnaiz

By Arra B. Francia, Reporter

SHARE PRICES are seen to move sideways this week as investors anticipate MSCI’s rebalancing and window dressing toward the end of the month.

The bellwether Philippine Stock Exchange index (PSEi) barely moved on Friday last week, edging down by a nearly flat 0.06% or 5.02 points to close at 7,647.51. On a weekly basis, the local index was down 0.32% or 24.77 points, following a 2% week-on-week decline in the financials sector and a 0.45% uptick in property stocks.

Net foreign selling persisted last week, averaging some P450 million daily.

“Several small-cap companies led the market on several days this week…,” Eagle Equities, Inc. Research Head Christopher John Mangun noted in a report on Friday.

“Blue chips are still less favored by investors as there is still lack of confidence in this market.”

Papa Securities Corp. said investors will be looking at the implementation of MSCI rebalancing scheduled on May 31. MacroAsia Corp. and Ayala-led Integrated Micro-Electronics, Inc. will be added to the MSCI Global Small Cap Indices, while Lopez Holdings Corp. has been dropped from the index.

Eagle Equities’ Mr. Mangun said he expected PSEi’s support at 7,500.

“As we go into the new trading week, there is strong indication that we will continue to see the index trade within this congestion area between 7,500 and 7,830. This is because the index refuses to break support at 7,500 and the fact that investors are not trading the blue chips,” Mr. Mangun said.

Meanwhile, online brokerage 2TradeAsia.com said that the Bangko Sentral ng Pilipinas’ reduction of the reserve requirement ratio for banks by another percentage point to 18% is positive for lending, given the inflow of funds into the financial system.

The local central bank’s decision to trim the level of deposits banks are required to maintain with it is estimated to release close to P100 billion in fresh funds into the financial system once implemented on June 1, which can then support more economic activities.

“This extra supply will be balanced off with demand for funds in the succeeding months, which would depend on companies’ capital rollout timeline and working capital needs,” 2TradeAsia.com said in a weekly market note.

The reduction came weeks after the BSP also hiked its benchmark rates by 25 basis points for the first time in more than three years.

“The intrinsic fundamental merits of each listed issue isn’t lost, much more with their main expansion drive… It would only be a matter of time for the tide to stabilize, as share ownership switches from weak to stronger hands,” 2TradeAsia.com said, placing PSEi’s immediate support at 7,500 and resistance at 7,700-7,750.