Profit-taking seen in markets in coming week

Posted at 05/06/12 5:11 PM

MANILA, Philippines – Stock investors may succumb to profit-taking in the coming week after strong corporate earnings results and optimism on the local economy drove Philippine stocks to another all-time high last week.

In its weekly advisory, AB Capital Securities Inc. also noted that the current high valuation may discourage investors to come in.

“Buying interest still looks strong but selling pressure at lofty prices is equally strong. The market is currently trading at 18.9x trailing PE, which is way above the five year average of 13.3x. The main index is also slightly above our fair value estimate of 5,200,” it said.

The benchmark Philippine main composite index rose 2.49% week on week or by 128.5 points to 5,297.55. The Philippine Stock Exchange Index hit an all-time high of 5,329.76 last Friday but dipped due to profit-taking.

AB Capital attributed the positive mood to rosy projections by the country’s economic managers, who said the local economy may have expanded by 5.5% in the first quarter of this year compared to the 4.9% growth achieved in the same period last year.

It cited the National Economic and Development Authority as saying growth will be boosted mainly by higher government spending, while export demand has also seen a pick up.

“A lot will depend on corporate earnings results that would be released next week and also the US employment data,” AB Capital said.

After the local markets closed on Friday, the U.S. government announced that the country’s unemployment rate was down slightly to 8.1% in April as employers added 115,000 nonfarm jobs. April’s rate compares with 8.2% the previous month and 9% in the same period last year.

Despite the decline, the Dow Jones industrial average fell 168 points, or 1.3%, on Friday to end at 13,038. The S&P 500 lost 22 points, or 1.6%, to 1,369, while Nasdaq was down 68 points, or 2.2%, to end the week at 2,956.

After posting two consecutive weekly gains, the major US indexes all ended the week lower, with the Dow losing 1.3% over the last five trading days.