Stock Market Weekly Update: Cautiousness remains

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) dropped by 380.73 points, or 5.63% week-on-week, to close at 6,379.17.

Investors remained cautious across global markets amid aggressive US Fed tightening, rising oil and commodity prices, and supply chain bottlenecks. They likewise remained circumspect as they await clarity on the economic platforms and Cabinet lineup of the presumptive president-elect, Ferdinand “Bongbong” Marcos Jr.

Furthermore, the possibility that the Bangko Sentral ng Pilipinas (BSP) may raise key policy rates earlier than expected, owing to the country’s strong first quarter 2022 GDP print at 8.3%, did little to infuse optimism in the stock market.

WHAT TO EXPECT THIS WEEK

This week, the market is expected to bounce following Wall Street’s rally last Friday as some investors remain hopeful the US Fed will implement monetary policies conducive to a soft landing.

A technical bounce is likely to occur at the start of the week as the Relative Strength Index (RSI), a technical indicator that indicates bullishness or bearishness in the stock market, reached oversold levels last week.

However, gains may be capped as global recession fears continue to hound investors, who will also be closely watching out for any key policy rate surprises from the BSP Monetary Board meeting on May 19, 2022, Thursday.

STOCK PICKS FOR THE WEEK

BDO Unibank, Inc. (BDO) — BUY

Valuations of the bank remain attractive, trading at 1.2x forward price-to-book value per share. Potential early rate hikes by the BSP should bode well for bank yields in the next few quarters. Accumulate shares once price breaks above PHP 135 and take profit at PHP 150 to PHP 160, or P170 for long term investors. If price breaks down from PHP 124, limit risk and cut loss to protect capital.

Bank of the Philippine Islands (BPI) — BUY

We expect BPI to deliver 41% and 21% net earnings growth in

2022 and 2023, respectively, driven by high single-digit loans growth and further improvements in asset quality. Potential early rate hike by the BSP should give a boost to bank yields in the next few quarters. We recommend accumulating shares once the price breaks above PHP 100 and take profit at PHP 110 to PHP110. If price breaks down from PHP 92, limit risk and cut loss.

Robinsons Land Corp. (RLC) — BUY

Valuation remains attractive as the stock is currently trading at 0.97x price-to-book value per share for full year 2022. Buy at current prices.

PSEi TECHNICAL ANALYSIS

Resistance: 6,400 / 6,600

Support: 6,000 / 6,200

The PSEi significantly dropped last week, breaking below the 6,600/6,400 levels with increasing volume.

The 6,200 level is crucial since a break below the said level will result in a 52-week low and a likely retest of the 5,750 level. On a positive note, the market is trading at oversold levels with the RSI at 26. Usually, the PSEi quickly rebounds after it hovers at oversold territory.

TRADING PLAN

Continue setting stop limit orders especially below 6,200 to protect capital. Support levels are currently at 6,200/6,000. Bargain hunters can prepare for the probable bounce and set take-profit levels if the market fails to break above the resistance levels.

KEY DATA RELEASES

Monday, May 16, 2022

– Corporate Earnings: Converge ICT Solutions, Inc. (CNVRG)
– Corporate Earnings: Megaworld Corp. (MEG)

Tuesday, May 17, 2022

– Overseas Filipino (OF) remittances for March 2022 (2.9% est., 1.3% in February 2022)
– US Retail Sales for April 2022 (1.0% est., 0.7% in March 2022)
– Corporate Earnings: GT Capital Holdings, Inc. (GTCAP)

Wednesday, May 19, 2022

– BSP interest rate decision (no change in rates expected)
– Corporate Earnings: Security Bank Corp (SECB)
– Corporate Earnings: Jollibee Foods Corp. (JFC)