Stock Market Weekly: Expect the bourse to trade lower

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) rose by 1.26% or 80.84 points week-on-week (w-o-w) to close at 6,492.75. This was driven by the lower-than-expected June 2024 inflation print of 3.7% (May 2024: 3.9%; June 2023: 5.4%; estimates: 3.9%) which was in line with Bangko Sentral ng Pilipinas’ (BSP) monthly forecast range of 3.4% to 4.2% and the government’s target range of 2% to 4%.

In addition, the ISM Manufacturing Index recorded its second month of contraction at 48.5% in June 2024 (previous: 48.7%), raising bets of sooner-than-later rate cuts. Meanwhile, value turnover last Friday was light at PHP 4.0 billion with thin net foreign selling at PHP 11.5 million as US markets closed for the July 4th holiday.

WHAT TO EXPECT

This week, we expect the local bourse to trade lower as investors account for the following: (i) uptick in non-performing loans (NPL) of Philippine banks to 3.57% in May 2024 from April’s 3.45%, the highest in almost two years; (ii) forecasted oil price hike for the fourth straight week due to geopolitical unrest in the Middle East and significant reductions in US crude stockpiles; and, (iii) impact of Hurricane Beryl on commodity prices as it barrels through some oil rigs in the Gulf of Mexico. Furthermore, investors will also digest the mixed bag of US labor market data.

Resistance: 6,500/6,700

Support: 6,200/6,400

ANALYSIS

The PSEi rose by +1.26% w-o-w to close at 6,492.75 points. The benchmark index continued its ascent, successfully breaking above the 6,400 resistance level. The index is currently hovering around 6,500 resistance level, which is a confluence of the 200-day MA, 50-day MA, and 38.2% fib.

The market is poised to trade a volatile path as it treads along a key resistance level. If risk-on appetite continues, the market may retest the next resistance around 6,500 and 6,700. However, if bears dominate, the market may pull back and revisit 6,400 and 6,200.

Gradually accumulate around the identified support areas. Lighten up if the PSEi fails to break above 6,700.

STOCK CALLS FOR THE WEEK

China Banking Corp. | TRAILING STOPS | Consensus Target Price: PHP 40.20

Our back-of-the-envelope estimate shows that CBC is unlikely to enter the index as it is not yet within the top 25 stocks in terms of market capitalization. Meanwhile, the index constituent with the lowest market capitalization, which is Converge ICT Solutions, Inc. (CNVRG), currently ranks 34th.

Hence, we project the benchmark index to remain unchanged. After forming an upward channel, CBC exhibited resistance to break above its upper trend line, resulting in a pull back. Recently, the stock broke below the lower trend line and is currently hovering around the 50-day moving average (MA) which acts as its immediate support. For those who have a profitable position, consider securing your gains by implementing trailing stops

Robinson Land Corp. | BUY | FMSEC Target Price: PHP 22.50

In our earlier report entitled “Unwarranted valuation discount”, we highlighted RLC’s better quality assets and growth prospects versus its peers to drive re-rating for the stock. In particular, we expect its commercial malls to be well-positioned to capture the dispersion of spending post-COVID and amid the work-from-home (WFH) set-up.

RLC has been trading sideways on a wide range. Currently, the stock continues to be on a bearish stance as the 50- day moving average (MA) is poised to cross over the 200-day MA, forming the death cross pattern. Further short-term weakness of the stock may offer attractive entry points as it is on track to retest the PHP 13.80 to PHP 14.50 support region. Hence it is advisable to trade the range and accumulate around the support area.

Semirara and Mining Power Corp. | BUY | Consensus Target Price: PHP 36.17

Department of Energy (DOE) Secretary Raphael Lotilla said that the Philippines will continue using its existing coal-fired plants to ensure sufficient baseload capacity until 2030, as efforts to increase renewable energy’s (RE) share in the power generation mix remain stagnant.

SCC has established resistance around the PHP 33.80 area and is trading within the PHP 31.00 to PHP 33.00 range. At current levels, the stock is trading above all its key moving averages (50-day, 100- day, and 200-day). Additionally, with the RSI and MACD indicators looking upward, a bullish outlook is evident. Hence, accumulating shares at established support levels is advised.

KEY DATA RELEASES

1.) PH Imports and Exports year-on-year (YoY) for May 2024 on Wednesday, July 10, 2024

2.) PH Trade Balance for May 2024 on Wednesday, July 10, 2024 (estimates: – USD 4,600 million; previous: USD 4,761 million)

3.) US Consumer Price Index (CPI) YoY for June 2024 on Thursday, July 11, 2024 (estimates: 3.1%; previous: 3.3%)

4.) US Initial Jobless Claims for July 6, 2024, on Thursday, July 11, 2024 (previous: 238k)

5.) US Producers Price Index (PPI) Final Demand YoY for June 2024 on Friday, July 12, 2024 (previous: 2.2%)