Stock Market Weekly:  PSEi to trade sideways amid the shortened trading week

WHAT HAPPENED LAST WEEK

Last week, the PSEi slipped by -2.95% w-o-w to close at 5,961.99 (-180.91pts.), hitting its lowest level year-to-date. The benchmark index declined as the Bangko Sentral ng Pilipinas (BSP) implemented an off-cycle interest rate hike of 25 basis points (bps). Furthermore, risk-off sentiment persisted amid the escalation of geopolitical tension in the Middle East as well as in the West Philippines Sea. Meanwhile, the US 10- year bond yield remained elevated on the back of better-than-expected 3Q23 US GDP at 4.9% (est: 4.3%). The local bourse saw a lackluster average daily turnover value at PHP 2.9 billion.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways amid the shortened trading week. Volume is expected to remain tepid as investors will stay on the sidelines on holiday thinned trading activity. Investors will be particularly on the lookout for the US Fed’s interest rate decision where consensus expects a pause in its tightening cycle. Moreover, investors will also digest key data and major earnings releases. On the local front, mixed fuel adjustment is seen with diesel expected to drop by PHP 1.10 to PHP 1.20/liter while gasoline is projected to go up by PHP 0.40 to PHP 0.60/liter.

Resistance: 6,000/6,200

Support: 5,700/5,400

ANALYSIS

The PSEi dropped by -2.95% w-o-w, hitting a year-to-date low at 5,961.99. The local bourse traded mostly in the red, breaking below the 6,000-support level. The benchmark index traded below key moving averages (50- day, 100-day, and 200-day) with MACD below zero and signal line indicating that sentiment remains to be bearish. Nevertheless, PSEi is hovering near oversold levels with RSI at 30.77, thus, there is a potential for the market to rebound. If the PSEi recovers, it can retest previous support-turned-resistance at 6,200 to 6,400. Otherwise, if the downtrend continues, it can retrace towards the next support levels around 5,700 and 5,400.

TRADING PLAN: Continue to buy in tranches around identified support areas (5,700 and 5,400, and 4,500) should the market revisit lower levels. Allocate some buying power to take advantage of offshoots in the market’s bearish stance.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands /BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 123.00

Bank of the Philippine Islands (BPI) reported 9M23 net income PHP 38.6 billion (+26.4% y-o-y) – ahead of consensus and our estimates, driven by the sustained loan and margin growth, as well as tempered provisions. We continue to like BPI as we think the stock will benefit from the positive transmission of higher interest rates as well as the recent RRR cut implemented in 3Q23 which supported banks’ net interest margins and earnings. Nevertheless, in terms of technical analysis, BPI has formed a head and shoulders pattern, indicating a bearish reversal. Furthermore, its MACD and RSI are on a declining trend, reinforcing bearish momentum of the stock. We prefer to be cautious and wait for the stock to establish strong support around the said levels before accumulating. Accumulate once BPI has established strong support around PHP 96.90 to PHP 100.65. Set stop loss limit around PHP 89.00 and take profits around PHP 111.44. For long term investors, we have a target price of PHP 123 (+17% from recent close).

Puregold Price Club, Inc.*/ BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 34.00

Puregold Price Club, Inc. (PGOLD) registered a 52- week low at PHP 27.20 and has been trading sideways since the start of 2H23 amid inflation and demand side worries leading to margin contractions. At current levels, PGOLD is trading below historical valuations. We believe that the counter is providing an entry point to capture our expected recovery next year. On the technical front, PGOL has recently formed an inverse head and shoulders reversal pattern with resistance at PHP 30.00 and supports at ~PHP 28.0/~PHP 27.00. Nevertheless, we think that the overall sentiment for the stock is weak. Thus, entering at identified support zones is advisable rather than a buy on breakout. Accumulating at identified support zones around PHP 28.00 is advisable. Take profit at around PHP 32.2 and set stop limit orders below 25.76. For long-term investors, we have a fundamental target price of PHP 34.00 (+17.44% upside from its recent close).

Robinsons Retail Holdings, Inc./ BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP P57.00

Since our last report entitled, “Normalizing sales and rising costs squeeze already low ROE,” the counter declined to a multi-year low of PHP 42.30 on October 23, 2023, registering a 30% decline from its year-to-date high of PHP 60.80, dragged by high interest rate expenses, foreign exchange losses, lower earnings from associates, financing risks on its Bank of the Philippine Islands (BPI) share acquisition, and FTSE All Cap exclusion In terms of price action, RRHI is trading in a downward channel hovering below its key moving averages (50-day, 100-day, and 200- day MAs). With its 20-day EMA of ~45.30 acting as its immediate resistance, RRHI breaking above this level may provide a buying signal for the stock. Furthermore, with RSI at oversold levels of around ~24, the stock is poised for a rebound as bargain hunters may start accumulating at immediate resistance levels. Accumulating once RRHI breaks above the immediate resistance level of P45.30 is advisable. Take profits at around PHP 52.09. Set stop loss orders at PHP 41.68. For long-term investors, we have a fundamental target price of PHP 57.00 (+34.12% upside from its recent close).

KEY DATA RELEASES

October 31, 2023

• PH Money Supply M3 SRF Y-o-Y for September 2023
• PH Bank Lending Y-o-Y for September 2023 (Aug 2023: 8.0%)
• PH Bank Lending net of RRPs Y-o-Y for September 2023 (Aug 2023: 7.2%)

November 2, 2023

• US FOMC interest rate decision (est. no change in rates)
• S&P Global PH Manufacturing PMI for October (Sep 2023: 50.6)
• US Unemployment Rate for October (Sep 2023: 3.8%, est: 3.8%)