Philippine shares may rebound this week, supported by bargain hunting following the market's steep decline in recent sessions, even as inflation concerns and a weaker economic outlook continue to weigh on sentiment.

On Friday, the Philippine Stock Exchange index (PSEi) fell 0.8%, or 48.25 points, to close at 5,956.33, while the broader all-shares index lost 0.61%, or 20.51 points, to end at 3,318.99. The close was the PSEi's lowest finish in 11 weeks, or since June 11's 5,910.06. Week on week, the index dropped 282.13 points from its Aug. 20 finish of 6,238.46.

"August lived up to its seasonal reputation, pinched by the 'Ghost Month' slump, MSCI rebalancing outflows, and downward revisions to government infrastructure spending targets," said Regina Capital Development Corp. Head of Sales Luis A. Limlingan.

Mr. Limlingan noted that a significant portion of foreign selling was concentrated around the MSCI rebalancing, with index-tracking funds contributing to sharp increases in turnover during individual trading sessions. MSCI's periodic index reviews typically prompt funds that track its benchmarks to buy or sell shares to match changes in index composition, a largely mechanical process rather than a judgment on individual companies.

"Structural foreign selling should abate substantially, leaving behind residual mechanical flows over the following trading sessions. With major deletions like Ayala Land having taken the main hit during the review window, foreign flows are poised to normalize into September," he said in a Viber message.

Philstocks Financial, Inc. Research Manager Japhet Louis O. Tantiangco said the local bourse could see a technical rebound this week as investors take advantage of lower prices, although the medium-term outlook remains bearish amid a weaker economic environment.

"The BSP (Bangko Sentral ng Pilipinas) raised its policy rate by another 25 basis points last week. The rise in interest rates is expected to temper aggregate demand since it makes borrowing more expensive. Hence, it will pose an additional challenge to the local economy," he said.

"The peso has slid to a new record low against the US dollar, and in doing so, has formally breached the 62 level. Sentiment-wise, the weakness shown by the local currency may discourage foreign investors from getting into the Philippines' equity market. Economy-wise, while a weak peso may benefit exporters and OFWs (overseas Filipino workers), it is also expected to raise our import costs, which in turn is an upside risk to inflation," he added.

F. Yap Securities, Inc. investment analyst Liam Limbo said the August inflation reading, to be released on Friday (Sept. 4), would be a key trading driver, with the print likely to remain above 6% due to weather disruptions and higher oil prices.

A BusinessWorld poll of 20 analysts showed headline inflation likely eased to 6% in August from 6.2% in July, but accelerated from 1.5% a year ago. That would keep inflation well above the BSP's 2-4% target band, the same gap that has accompanied the central bank's series of rate hikes this year.

COL Financial Group research analyst Denise Joaquin said investors could also react to policy hints from the US Federal Reserve's Jackson Hole Symposium over the weekend. The annual symposium in Wyoming is closely watched as a venue where the Fed chair has signaled the direction of US monetary policy in past years, with implications for global capital flows into emerging markets like the Philippines. — Alexandria Grace C. Magno