Stock Market Weekly: Anticipated lower June inflation to induce sideways trading

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) rebounded to 6,468.07 (+74.52 points; +1.17%) as a result of bargain hunting and mid-year window dressing activities. Investors also weighed news about a narrower budget deficit of PHP 122.2 billion for May 2023. Gains, however, were capped in the latter part of the week amid fears of the inflationary impact of the 7% increase in minimum wage for workers in Metro Manila.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to continue trading sideways with a slight upward bias as investors anticipate lower June 2023 inflation print (consensus estimate: 5.5%; May 2023: 6.1%). In addition, local fuel prices are expected to decrease by PHP 0.60 to PHP 0.90 per liter of gasoline and PHP 0.50 to PHP 0.80 per liter of diesel. On the international front, positive sentiment from the US market may spillover into the local bourse as inflation data from the US Core PCE Price Index posted slower growth in May 2023 at 4.6%.

PSEi TECHNICAL ANALYSIS AND TRADING PLAN

Resistance: 6,600/6,800

Support: 6,200/6,400

The 6,400 level proved to be a strong support as the PSEi bounced back from the said level last week. However, the average value turnover remained tepid at PHP 4.1 billion. Moreover, it is worth noting that an immediate resistance is at play at the 200-day moving average (MA) (~6,530). A break above the 200-day MA will likely result in a retest of the 6,600-resistance level. We believe that only once the PSEi breaks above 6,600/6,800 will there be a reversal of the market’s short-term downtrend.

Gradually accumulate once the PSEi trades back above 6,800.

STOCK CALLS FOR THE WEEK

PLDT INC. (TEL): Buy on Breakout/ FMSBC Target Price: 1,470

According to the National Telecommunication Commission (NTC), there are now over 100 million registered SIMs (subscriber identity modules) nationwide as of June 20, 2023. As of end-Mar 2023, given the original 168-million subscriber base, market shares were at 38.71%/50.12%/9.52% for TEL/GLO/DITO Tel, respectively.

We reiterate our view that TEL can mitigate the impact of rising competition (especially from mobile) on its earnings, thanks to its strong positioning in the fixed-line broadband segment. TEL currently trades above its key moving averages (50-day and 100-day MA).

The technical indicator MACD (moving average convergence divergence) confirms the bullish momentum with the MACD line hovering above the signal and zero line. With the recent breakout, TEL is poised to retest the 200-day MA (~PHP 1,421). We think that TEL must break above the 200-day MA for a bullish reversal to take place. Accumulating once TEL breaks above the 200-day MA is advisable. Set stop limit orders 8% below average cost.

Take profit at least 15% above average cost. For long-term investors, our fundamental target price for TEL is PHP 1,470.

ACEN Corp. (ACEN): Buy on Breakout/ FMSBC Target Price: 6.92

Year-to-date, ACEN Corp. (ACEN) dropped by as much as 40% from its year-to-date high last January 4, 2023. The downtrend was attributable to ACEN’s removal from the MSCI Philippine Index as well as its below-consensus earnings.

ACEN is currently trading below its key moving averages (20-day, 50-day, 100-day, and 200-day MA). However, the counter is hovering around oversold levels with the technical indicator RSI (relative strength index) at 22.6. With the tight supply-demand situation and positive outlook on renewable energy (RE), we believe that the counter may rebound. Accumulating once ACEN breaks above PHP 5.90 is advisable. Set stop limit orders below PHP 5.25. Take profit at around PHP 6.70 to PHP 7.00.

Megaworld Corp. (MEG): Buy / FMSBC Target Price: 2.83

Year-to-date, MEG declined by as much as 19% from its YTD high of PHP 2.37 last February 8, 2023. MEG is currently consolidating within the PHP 1.90 and PHP 2.12 range. Moreover, the counter is currently trading below key moving averages (50-day, 100-day, and 200-day) with bullish MACD crossover last June 27, 2023. Hence, we think that a break above PHP 2.12 will result in the stock retesting PHP 2.40. Accumulating once MEG breaks above PHP 2.12 on strong volume is advisable. Set stop limit orders below PHP 1.90. Take profit at around PHP 2.44/PHP 2.50.

KEY DATA RELEASES

1.) PH S&P Global Manufacturing PMI on Monday, July 3, 2023 (May 2023: 52.2)

2.) US S&P Global Manufacturing PMI on Monday, July 3, 2023 (May 2023: 46.3)

3.) PH CPI YoY on Wednesday, July 5, 2023 (consensus estimate: 5.5%; May 2023: 6.1%)

4.) US Trade Balance on Thursday, July 6, 2023 (consensus estimate: negative USD 68.3 billion; May 2023: negative USD 74.6 billion)

5.) US Initial Jobless Claims on Thursday, July 6, 2023 (May 2023: USD 239k)

6.) US Unemployment Rate on Friday, July 7, 2023 (consensus estimate: 3.6%; May 2023: 3.7%)

7.) PH Unemployment Rate on Friday, July 7, 2023 (May 2023: 4.5%)

8.) PH Foreign Exchange Reserves on Friday, July 7, 2023 (May 2023: USD 101.3 billion).