Expected rate cuts, earnings brighten Ghost Month outlook

Despite August’s historical reputation as the weakest month for the stock market, some analysts are bullish, driven by anticipated rate cuts and strong second-quarter profit projections.

“Historically speaking, August is the worst month for the stock market. The stock market posted negative month-on-month returns for the month of August in 13 out of the past 20 years. This is typically a broad-based decline, meaning almost all the sectors are affected,” AP Securities, Inc. Research Head Alfred Benjamin R. Garcia told BusinessWorld in a Viber message.

“However, we’re a bit more optimistic this year, with rate cuts on the horizon and good earnings outlook for the second-quarter reports due to come out in early August,” he added.

Ghost Month, which typically falls in August, originates from an ancient Chinese belief that the gates of hell open, allowing ghosts to return to the living world.

This year, Ghost Month, the seventh month in the Chinese lunar calendar, runs from Aug. 4 to Sept. 2.

In light of this, Mr. Garcia advised investors to consider any market declines in August as a ‘buying opportunity.”

“Historically speaking, in 13 out of the past 20 years, stock market returns from September to December has been positive,” he said.

Finance Secretary Ralph G. Recto said last week that the Philippines is on track for a rate cut this year, as inflation slowed to 3.7% in June. The Bangko Sentral ng Pilipinas (BSP) has kept interest rates steady at 6.5% in its last six meetings.

BSP Governor Eli M. Remolona, Jr. has indicated that a rate cut is likely at the Monetary Board’s August 15 meeting.

Rastine Mackie D. Mercado, research director at China Bank Securities Corp., noted that since 1998, August has typically shown weak month-on-month price performance, with both average and median returns just under 2%, and over 65% of Augusts recording month-on-month losses.

“It’s also worthy to note that around 65% of Julys over the same period also posted positive month-on-month returns, which may offer some insight that August may be a month which typically sees profit taking,” he added.

Despite this, Mr. Mercado said it is better to focus on the catalysts that will drive the market in the near term.

“Given that the month-to-date return for July is at around 4.7%, we think that this coming August may be a month where we’ll see profit-taking. If the index stages a consolidation, then we think that a successful test of the 6,550 support could present some redeployment opportunities,” he noted.

“With respect to specific sector performance, we think that the upcoming earnings season will be a key driver in price action,” he added.

For the rest of the year, Mr. Mercado said the prospect of a rate cut will drive the local equity market.

“However, the key to sustaining the uptrend would be an expansion in earnings expectations,” he added.

Mark V. Santarina, Senior Trader at Globalinks Securities and Stocks, Inc., is also optimistic about the market’s outlook for September, aligning with the anticipated rate cuts.

“August presents a good opportunity to accumulate blue-chip stocks as the PSEi is likely to trade sideways,” he said in a Viber message.

Meanwhile, Michael L. Ricafort, Chief Economist at Rizal Commercial Banking Corp., said in a separate Viber message that the market slowdown in August coincides with bad weather and the vacation season in Northern Hemisphere countries such as the United States.

“Any slowdown in trading, economic, business activities is not only due to Ghost Month, but it is also a factor,” he said. – Revin Mikhael D. Ochave, Reporter