Stock Market Weekly: Downward bias amid cautiousness among investors

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) declined by -2.07% week-on-week (w/w) to close at 6,383.70 (-135.06 points), amid tepid volume throughout the shortened trading week. Investors traded cautiously ahead of the US Fed policy meeting, wherein rates were kept steady between the 5.25%-5.5% range.

Officials also telegraphed the potential for just one interest rate cut before the end of 2024, even as the US Consumer Price Index (CPI) for May came in slower-than-expected at 3.3% year-on-year (y/y) (Apr 2024: 3.4%). In addition, the International Monetary Fund’s (IMF) downward revision on its 2024 Philippine gross domestic product (GDP) forecast to 6.0% (previous: 6.2%) and concerns over the weak property sector and uncertain growth outlook in China did not help sentiment.

On the local front, dovish comments of Finance Sec. Ralph Recto, who said that the Bangko Sentral ng Pilipinas (BSP) can lower its key rate more than once this year and four times next year, did little to improve investor appetite.

Top index performers were MER (+3.58%) and AGI (+0.11%), while index laggards were WLCON (-9.84%), JGS (-6.50%), and JFC (-4.78%). The index breadth was negative, with two gainers versus 27 losers. The average daily turnover value was PHP 3.4 billion. Foreigners were net sellers by PHP 1.3 billion.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to continue its downward bias as investors remain cautious on the timing of the US Fed’s interest rate cut decision. The market may be weighed down by the recent hawkish tone from Minneapolis Federal Reserve President Neel Kashkari who hinted that the Fed may not cut rates until Dec 2024, resulting in an upward pressure on the US Treasury bond yields yesterday.

Furthermore, investors will closely watch the developments on France’s election race after last weekend’s violent protests. On the local front, fuel prices are also expected to increase by about PHP 1.75 per liter of diesel, PHP 0.85 per liter of gasoline, and PHP 1.90 per liter of kerosene.

Resistance: 6,600

Support: 6,400

ANALYSIS

The PSEi declined by 2.07% w/w to close at 6,383.70 (-135.06 points). The index pulled back, declining for four straight days after failing to break above the 200-day MA on June 10, 2024. The index is currently hovering around the 6,400 level, which is historically a strong support area.

Hence, a decisive break below may result in a downtrend. However, if the 6,400 level proves to be a strong support, the PSEi may bounce back and retest the next resistance level around the 200-day MA and 6,600 resistance levels.

Watch out for possible basing, which could provide trading opportunities. For those who plan to increase exposure, consider tranche buying around identified support areas.

STOCK CALLS FOR THE WEEK

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

BPI has declined by more than 11% from its all-time high of PHP 129.50. It currently trades within a long-term up-trending channel, below medium-term key moving averages (50-day and 100-day) and with technical indicator RSI nearing oversold levels at ~33, signaling a potential rebound.

With this, accumulating on pullbacks is advisable. Accumulating once BPI nears support levels at the PHP 110/112 area is advisable. Set stop limit orders below PHP 101 and take profits at around PHP 126.5. For long-term investors, we have a fundamental target price of PHP 123.0 (+5.94% upside from recent close).

BDO Unibank, Inc. | BUY | FMSEC TARGET PRICE: PHP 170.00

BDO has declined by as much as 20% from its all-time-high of PHP 160.70 on April 1, 2024. The stock has created a descending triangle pattern formed by two downward sloping trend lines. A break below the support level may signal a continuation of the downtrend.

However, a break above the upper trend line may indicate a bullish reversal for the stock. Hence, for a more favorable risk-reward ratio, it is advisable to accumulate once the stock breaks above the upper resistance. Accumulate once it breaks above the upper trend line around PHP 134. Set stop loss limit orders around PHP 123.28 and take profit around PHP 154.10. For long-term investors, we have a fundamental target price for BDO at PHP 170.0 (+25% upside from recent close).

RL Commercial REIT, Inc. | BUY | FMSEC TARGET PRICE: PHP 5.64

RCR saw an uptrend, surging by as much as 7.21% to PHP 5.35. Throughout this period, RCR surpassed all its key moving averages (MA), including the 50-day, 100-day, and 200-day MA. At current levels, the stock is nearing oversold territory, as indicated by its RSI hovering around 75, suggesting a potential temporary retracement.

Accumulate once RCR pulls back near its 100-day MA around PHP 5.20 to lock in yields up to 7.7% based on our estimates. Set stop loss limit orders at PHP 4.84 and take profit around PHP 5.98. For long-term investors, we have a fundamental target price of PHP 5.64 (+7.22% upside from recent close).

KEY DATA RELEASES

1. Overseas Cash Remittances y/y for Apr 2024 on Monday, June 17, 2024 (April 2024: 3.1%)

2. Overall Balance of Payments (BOP) for May 2024 on Wednesday, June 19, 2024 (April 2024: -USD 639 million)

3. US Initial Jobless Claims as of June 15, 2024, on Thursday, June 20, 2024 (previous: 242k)

4. US S&P Global preliminary manufacturing PMI for June 2024 on Friday, June 21, 2024 (estimates: 51.0; May 2024: 51.3)

5. US Existing Home Sales for May 2024 on Friday, June 21, 2024 (estimates: 4.09 million; Apr 2024: 4.14 million)