Stock Market Weekly: Continued volatility amid global banking system jitters

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) closed lower by 1.82% (-120.16 points) week-on-week, finishing at 6,469.72. The market was rattled by the recent turmoil in the banking sector, as news of Credit Suisse’s weaknesses in its internal controls over financial reporting and the collapse of Silicon Valley Bank (SVB) sparked fears of contagion in the financial sector.

Mid-week, the PSEi bounced back on technical factors and stronger sentiment in global markets. US inflation came in line with expectations at 6.0% year-on-year for February 2023 (January 2023: 6.4% year-on-year). By Thursday, the index fell again as risk aversion in Asia-Pacific markets weighed on sentiment.

The market recovered some of its losses on Friday following the pledge of 11 banks to deposit USD 30 billion in First Republic Bank, which helped to ease investor anxiety.

Top index performers were Semirara Semirara Mining and Power Corporation (SCC) (+5.0%), DMCI Holdings Inc. (DMC) (+4.9%), and BDO Unibank Inc. (BDO) (+2.7%), while index laggards were Wilcon Depot Inc. (WLCON) (-9.8%), Converge (CNVRG) (-9.7%), and Metro Pacific Investments Corp. (MPI) (-8.4%).

The index breadth was negative with seven gainers versus 23 losers. The average daily turnover value was PHP 5.9 billion. Foreigners were net sellers by PHP 27.3 billion (PHP 20.4 billion of which came from the ICT block sale).

WHAT TO EXPECT THIS WEEK

We expect the market to see continued volatility due to the uncertainty surrounding the global banking system and the Federal Reserve’s upcoming decision on interest rates.

The market will price in the news that UBS agreed to buy Credit Suisse for about USD 3.2 billion as governments looked to stem a contagion threatening the global banking system. Investors will be closely watching the outcome of the Federal Reserve’s two-day meeting on March 22 and 23.

Market analysts are now forecasting a smaller 25-basis-point (bp) rate hike rather than the expected 50-bp hike due to concerns around the impact of tight monetary policy on the banking sector.

The decision will be critical for the economy and the markets moving forward, as the Fed attempts to balance moves to rein in persistent inflation while also managing the impact of recent banking woes.

STOCK CALLS FOR THE WEEK

MREIT, Inc. (MREIT) — BUY ON BREAKOUT

We see the REIT sector benefiting from a Fed/ BSP pivot or pause in the next six months, with MREIT among our preferred picks in the sector. We have a BUY call for MREIT, with a target price of PHP 15.30, implying an attractive dividend yield of 7.1%/7.1% on our forecasted payout for full year 2023 and 2024.

However, we advocate patience in accumulating the stock now. The risk of a downward price action has increased in the near term, as the high interest rate cycle appears to be extended for longer, with both the Fed and BSP’s fight against inflation still far from over.

Hence, we prefer to wait for better entry points – when the Fed/BSP are close to a pause – to potentially lock in better yields and, at the same time, position to benefit from capital appreciation as interest rates peak and economic growth risks come to the fore.

On price action, MREIT must break above PHP 15.00 for the stock to resume its bullish price action. Accumulating once MREIT breaks above PHP 15.00 is advisable. Set cut loss below PHP 14.20. Take profit at around PHP 16.80/PHP 18.00. For long-term investors, our target price for MREIT is PHP 15.30.

Ayala Corp. (AC) — BUY

Since February 2023, AC’s share price has fallen by as much as 13% amid fears of higher interest rates. The recent correction brought AC to trade at its key support area of PHP 600.00.

That said, aggressive short-term traders/ bargain hunters can attempt to take advantage of the stock to ride the probable bounce. The key risk for the stock is that the break below PHP 590.00 would result in further pullback. Tight stops must be in place. Accumulating AC at current levels is advisable. Set stop limit orders below PHP 575.00. Take profit at around PHP 690.00/PHP 700.00.

Metro Pacific Investments Corp. (MPI) — BUY ON BREAKOUT

MPI reported consolidated core net income of PHP 14.2 billion (+15% y-o-y) for full year 2022, which is below consensus expectations, as the better performance from its toll and energy segments were pared by the underperformance of its light rail and water businesses.

For hospitals, core income dropped to PHP 1.1 billion (-24% y-o-y), attributed to higher personnel costs with the additional headcount and higher depreciation from completed capex as they resume expansion plans. The recent correction brought the stock to trade below its previous support level of PHP 4.00 and its key moving averages (50-day, 100-day, and 200-day MAs).

We think MPI must first break above PHP 4.00 for the stock to turn bullish. Accumulating once MPI breaks above PHP 4.00 is advisable. Set cut loss below PHP 3.70. Take profit at around PHP 4.60/PHP 4.80.

PSEi TECHNICAL ANALYSIS

Resistance: 6,600 / 6,800

Support: 6,400 / 6,200

As expected, after the market broke below the index’s 100-day/200-day moving average price (MA), the market retested (and briefly broke below) the 6,400 level. However, the PSEi rebounded after trading at oversold levels. Then again, the market remains below the 200-day MA. Meanwhile, the technical indicator MACD remains below both the signal and zero lines, suggesting continued bearish momentum. Should the PSEi fail to sustain its rebound and stay below the 200-day MA, expect the market to retest 6,200.

TRADING PLAN

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

KEY DATA RELEASES

Tuesday, March 21, 2023
– US Existing Home Sales for February 2023 (consensus estimate: 4.15 million; January 2023: 4 million)

Wednesday, March 22, 2023
– Corporate Earnings: Monde Nissin (MONDE)

Thursday, March 23, 2023
– US FOMC (Federal Open Market Committee) interest rate decision (consensus estimate: 25-bp rate increase)
– BSP Overnight Borrowing Rate (consensus estimate: 25-bp rate increase)
– US Initial Jobless Claims as of March 18, 2023 (previous: 192k)
– US New Home Sales for February 2023 (consensus estimate: 650k; January 2023: 670k)
– Corporate Earnings: PLDT (TEL)

Friday, March 24, 2023
– US S&P Global preliminary manufacturing PMI (Purchasing Managers Index) for March 2023 (consensus estimate: 47.3; February 2023: 47.3)
– Corporate Earnings: GT Capital (GTCAP)