Stock Market Weekly: Bargain hunting may ensue 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) dropped by 2.45% week-on-week (WoW), closing at 6,613.85. This was mainly due to the sustained weakness of the Philippine peso against the US dollar, which dipped to its lowest in two years since October 2022 at around PHP 59 per dollar.

Midweek, the market attempted to erase some losses amid bargain hunting post-MSCI rebalancing on November 26, 2024. Despite a surge in trading volume, the PSEi still closed the day in the red, reflecting persistent selling pressure. Meanwhile, the announcement made by US President-elect Donald Trump regarding higher US tariffs for Canada, China, and Mexico also contributed to the decline.

Foreign flows posted a PHP 1.25-billion net outflow as a result of the aforementioned events. The week closed with muted volume as the US market was closed for the Thanksgiving Holiday on November 28, 2024.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with a slight upward bias due to bargain hunting following last week’s lower close. Technical indicators are approaching oversold territory, suggesting potential for a short-term rebound. Investors are also keeping an eye on the inflation rate for November 2024, which is projected by the Bangko Sentral ng Pilipinas (BSP) to range between 2.2% and 3%.

This is higher than the 1.3% inflation in October 2024, driven by food supply issues caused by typhoons, increasing electricity costs, and the weakening of peso against the US dollar. Nevertheless, the BSP forecast is still in line with the 2% to 4% target range. Meanwhile, oil prices are projected to decline for the remaining weeks of 2024 due to a decrease in overall demand.

Resistance: 6,800 / 7,000

Support: 6,600 / 6,400

ANALYSIS

The PSEi failed to climb above the 200-day MA and declined by 2.45% WoW to close at 6,613.85 (-166.28 points) amid heavy foreign selling. It is currently establishing a bottom near key support levels around the 6,600 and 6,500 levels, with momentum indicators nearing oversold conditions, potentially signaling a short-term recovery. At current levels, the risk-reward ratio is skewed to the upside. Accumulating at current levels is advisable.

STOCK CALLS FOR THE WEEK

DigiPlus Interactive Corp. (PLUS) | BUY ON BREAKOUT | Consensus Target Price: PHP 29.00

As PLUS grows closer to acquiring a federal license to operate online gaming services in Brazil, we believe its entrance into the country could be another impetus for growth to sustain its outstanding performance over the past two years. With almost twice the population of the Philippines (211 million) and almost thrice the GDP per capita (USD 10,043), the Brazilian iGaming market could provide ample runway for topline expansion. Backed by a healthy balance sheet, we believe that PLUS has the expertise and resources to replicate its success in the Philippines in South America. Accumulating PLUS once it breaks above the downtrend resistance line around its support at PHP 21.20 is advised. Take profits at PHP 24.35 and set your stop loss limit below PHP 19.50.

Manila Water Company, Inc. (MWC) | BUY ON PULLBACKS | Consensus Target Price: PHP 30.52

MWC’s Service Improvement Plan that started in 2023, together with its expansion efforts in the country, positively impacted the company’s 9-month 2024 financial performance. This year, MWC expanded its operations in Rizal through its Metro Royale Phases 1 & 2 Mainline Extension and Sitio Balatik Pipelaying Project, catering to 3,462 residents and 2,400 households, respectively. The company is also eyeing potential projects in Australia, Brazil, and Mexico to expand its portfolio. Accumulating once it pulls back around PHP 26.00 is advisable. Take profits around PHP 29.90 and set stop loss limits at PHP 23.92.

MREIT, Inc. (MREIT) | BUY ON BREAKOUT | Consensus Target Price: PHP 15.79

As highlighted in MREIT’s 9-month 2024 earnings call, its portfolio is primarily occupied by BPOs (71%), traditional offices (23%), retail (4%), and hotels (2%). Next year, MREIT plans to increase its retail space, addressing challenges in the office sector. Additionally, management announced that “Wave 3” assets will begin contributing by 4th quarter 2024, bolstering MREIT’s revenue base. Following this infusion, total gross leasable area (GLA) will rise to 482,056 square meters, with a projected 35%-40% increase in distributable income. Accumulating MREIT once it breaks above PHP 13.47 is advised. Take profits at PHP 15.50 and set your stop loss below PHP 12.38.

KEY DATA RELEASES

1. PH S&P Global Manufacturing Purchasing Managers’ Index (PMI) for November 2024 on Monday, December 2, 2024 (previous: 52.9)

2. US S&P Global Manufacturing PMI Final on Monday, December 2, 2024 (estimates: 48.8; previous: 48.5)

3. PH Inflation Rate year-on-year for November 2024 on Thursday, December 5, 2024 (previous: 2.3%)

4. US Initial Jobless Claims for November 2024 on Thursday, December 5, 2024 (estimates 220K; previous: 213K)

5. PH Unemployment Rate for October 2024 on Friday, December 6, 2024 (previous: 3.7%)

6. PH Foreign Exchange Reserves for November 2024 on Friday, December 6, 2024 (previous: USD 112.43 billion)