Dow's best week to boost investor sentiment

Posted at 06/10/12 5:52 PM

MANILA, Philippines – Stock investors have reason to feel optimistic in the coming week after the Dow Jones Industrial Average advanced 3.6% or 435.63 points week on week to close at 12,554 – its best week for the year.

The Nasdaq Composite Index also rose 4% to close at 2,858; while the S&P 500 Index finished the week up 3.7% to 1,326.

Moreover, euro-zone finance ministers agreed on Saturday to lend Spain up to $125 billion to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.

After a two-and-a-half-hour conference call of the 17 finance ministers, which several sources described as heated, the eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.

Analysts said financial markets may be calmed by the announcement when they reopen on Monday.

"The figure of up to 100 billion is more encouraging and pretty realistic; it's an attempt to cap the problem," said Edmund Shing, European head of equity strategy at Barclays.

According to Gregg Adrian R. Ilag, equities analyst of brokerage AB Capital Securities, Inc., the Philippine Stock Exchange Index traded in a range last week as investors “considered events on the western economies while keeping an eye on local developments.”

The benchmark index ended with a loss of 1.34% week on week to 4,994, while the broader All share index was also down week on week by 0.89% to 3,335. Foreigners were net sellers for the week due to external risk over global economy.

“The European debt crisis continues to haunt investors especially now that the date of the Greek elections moves closer,” Ilag said on AB Capital’s weekly report.

Greece will be having an election on June 17 which will give rise to a new government.

“Several economic data from China and the U.S. will be released next week but investors be will more concerned over developments in Greece. The elections will likely keep the markets on its feet which would lead to more volatility over the near term,” Ilag said.

Ilag noted that developments in the local economy “continue to be encouraging,” with inflation in May coming in at 2.9% from 3% in April and well within the central bank’s inflation target of 2.5% to 3.4%.

“The manageable inflation level should enable BSP to keep interest rates low in order to protect domestic demand amid the higher risk due to western economies,” he said.

The Philippines recently reported a higher-than-expected 6.4% gross domestic product growth for the first quarter but AB Capital said it already priced in this “stellar growth.”

“On the technical perspective, we see consolidation next week as the index trades near the 23.6% Fibonacci retracement from the 5,329 high with several moving averages (20, 50 and 100) showing bearish crosses,” he said.

Ilag said the benchmark index will still be in a range in the coming week, while awaiting news from Greece.

“We continue to be bullish on some equity issues that appear to be fundamentally strong even with all the external risk that persist from Europe,” Ilag said, citing “buy” ratings for First Philippine Holdings Inc., First Gen Corp. and SM Prime Holdings Inc. -- With report from Reuters