Why the Philippine Stock Rebound Won’t Last

(Bloomberg) -- As Philippine stocks snap the longest losing streak in eight months, analysts warn the rebound is unlikely to last even as the central bank cuts lenders’ reserve requirement ratio.

International investors have yet to complete portfolio adjustments to reflect changes in the MSCI Index effective May 28, according to strategists at AP Securities Inc., ATR Asset Management Inc. and Papa Securities Corp. In addition, U.S.-China trade relations will have to improve, the firms said.

The Philippine Stock Exchange Index rose as much as 2.2% Friday, snapping a five-day slump during which overseas investors dumped shares. It pared gains to 1.5% at the close as international investors exited for the 10th straight session, the longest streak this year.

“Even if the newsflow is good, we will not see a reversal of this weakness and withdrawals until the MSCI re-balancing is completed and the U.S. reaches a trade deal with China," said Manny Cruz, a strategist at Papa Securities. “Any bounce will be temporary.”

Read: Philippines Lowers Banks’ Reserve Ratio After Interest-Rate Cut

Why the Philippine Stock Rebound Won’t Last

“While this rebound might have a day more to go, we advise clients to sell on rally as the external headwinds from U.S-China trade tension and MSCI rebalancing would trigger funds outflow and prolong market weakness,” said Rachelle Cruz, head of research at AP.

Still, the central bank’s latest move and its rate cut last week will help economic growth pick up later in the year, after it slowed in the first quarter, according to ATR and Papa. Both firms recommend investors to buy on dips and seek out shares such as banks and property companies.

The Philippine Stock Exchange Index will likely hold its support at 7,300 to 7,400, according to Cruz. The gauge was as high as 7,636.91 on Friday before closing the day at 7,583.82.

While the central bank’s move “will be long-term positive, the weakness in equities will continue,” said Julian Tarrobago, the head of equities at ATR, which manages 125 billion pesos in funds. “The escalating U.S-China trade tension and the MSCI Index rebalancing, while temporary, are major overhangs that would spur more outflows.”

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