MANILA - All eyes will be on the US Federal Reserve this week when its holds a key policy meeting, putting an end to months of speculation on the future of its economic stimulus.
As fears about a US-led military attack against Syria dissipates, financial markets are focusing back on the "original" concern – the scaling back of the Fed's $85-billion bond-buying program, considered as "one of the last market-moving news that poses a downside risk to the local market this year."
"It will be a cautious market. We're going to see some weakness and light trading," said Jose Vistan, head of research at AB Capital Securities Inc.
Analysts expect the impact of the Fed decision to be subdued with tapering being priced in as a certainty and debates shifting to the amount of reduction ranging between $10 billion and $20 billion.
"On one hand, this is a good sign that markets have begun to recognize the message a cut-back delivers – the US economy is on the right track to recovering from its worst slump since the Great Depression of the 1930’s, the reversal induced by the bursting of the dot.com bubble before the turn of the millennium, and the slowdown experienced after the 9-11 terrorist attack over a decade back," said Jun Calaycay of Accord Capital Equities Corp.
"On the other hand, the uncertainty of the amount leaves the door an inch ajar for an exit option should it be more than expectations," Calaycay added.
The US central bank's stimulus – the third tranche of what has come to be called “quantitative easing” (QE3) – has been a key driver of equities rallies in the past several months.
Stock markets, particularly emerging markets like the Philippines, have been taking a beating since Fed chairman Ben S. Bernanke signaled in mid-May that the US central bank might cut its massive stimulus program should the world's largest economy show signs of recovery.
After coasting to 31 record highs in the first five months, the news of tapering has dragged the Philippine Stock Exchange index (PSEi) to bear territory twice this year and erased its year-to-date gains.
“Two scenarios are at foresight: first would be that the immediate start of the tapering that could force the main index to revisit 5,900 and second is the rally towards 6,500 if the Fed would delay its announcement to its next meeting in October,” said Abbygayle M. Estrella of AB Capital Securities Inc.
Last week, the PSEi rose 2.65 percent to finish at 6,133.24 on the back of favorable economic data and delayed military action against Syria.
In the week ahead, LT Group Inc and GT Capital Holdings Inc will join the 30-company PSEi benchmark, replacing Belle Corp and Meralco.
source: interaksyon.com
