Sentiment to focus on rate hike, depreciation

The Bangko Sentral ng Pilipinas (BSP) recently raised its benchmark interest rate by 50 basis points to 5.5 percent, a move that doubled the increase widely expected by the market. This decision suggests the BSP anticipates inflationary pressures will remain elevated, with the central bank signaling inflation could return to its target range only by 2028. Higher interest rates typically weigh on equity markets by increasing borrowing costs for companies and making fixed-income investments more attractive.

Compounding market pressure is the peso’s continued depreciation, which touched a record low of P63.62 against the US dollar last week. A weaker currency raises concerns about imported inflation and its potential impact on corporate costs and consumer spending. Additionally, rising global oil prices add another potential source of inflationary pressure. These factors, alongside the prospect of further monetary tightening, are reported to drag the local stock market.

Despite the local market being described as fundamentally at a "bargain level," a sustained rally is deemed difficult without positive catalysts. Foreign investors were net sellers of Philippine equities last week, with the outflow concentrated on a single day that coincided with Mynt Inc.'s initial public offering. Mynt, the parent company of GCash, saw its shares close below the offer price, adding to market scrutiny. Given these conditions, 2TradeAsia.com advises investors to remain defensive and consider adding exposure only after a sustained close above 5,800 following the US Federal Reserve's decision.