(Bloomberg) -- The rally that drove the Philippine key stock benchmark to a bull market last month is struggling to sustain as the nation’s inflation quickened to a fresh 14-year high.
The Philippine Stock Exchange Index fell 0.8% Tuesday, extending its decline for a second day. The gauge entered bull territory three weeks ago when gains culminated in a rise of more than 21% from a Sept. 30 low.
The measure has been locked in a tight range as fears of elevated inflation and higher interest rates fueled profit taking. Consumer prices rose 8.7% in January from a year earlier, beating estimates including that of the central bank’s and putting pressure on regulators to sustain rate increases.
“Stocks have risen too fast, too soon and there are still a lot of things that can happen,” said Noel Reyes, who helps manage $1.84 billion as chief investment officer at Security Bank Corp. “The Fed and the local central bank aren’t yet fully done for it’s possible that inflation can still be high. Some are also cashing in since the rally’s been strong.”
Reyes sold some shares during the rally in January on anticipation of pullbacks as he expects inflation to stay elevated in the first half of the year before tapering in the second half. He sees the index closing 2023 at 7,800, up 19% from end-2022.
“Volatility will persist until the inflation trend is controlled,” said First Metro Investment Corp. research head Cristina Ulang. While a 50 bps rate increase should already be priced in for this year, she said stocks will still likely pullback on profit taking when the hikes happen.
She has a more conservative year-end target of 7,500 for the index given that interest rates will remain elevated and restrictive, which will cap earnings and economic growth.
Still, analysts said there are buying opportunities, particularly for stocks that are trading at attractive valuations and large caps. “Buy on dips and sell on rally. Focus on value,” said COL Financial Group Inc. research head April Lynn Lee-Tan.
(Updates with index close in second paragraph)
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