Stock Market Weekly: Expect some profit-taking

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange (PSEi) surged 4.25% higher week-on-week to close at 6,951.54 (+283.57 points), tracking the Asian region, driven by China’s reopening and the weaker US dollar.

Also bolstering optimism was the easing of the US inflation print from 7.1% in November 2022 to 6.5% in December 2022, as well as comments from the top economic managers in the Philippines that imply slower rate hikes this year.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said that the BSP may be nearing the end of its monetary tightening cycle as he sees inflation normalizing to about 3% in the latter part of the year. He also signaled a 25- to 50-basis-point rate hike in the Monetary Board’s February meeting, noting that there is less pressure to match the US Fed’s rate hikes. At the same time, Department of Finance (DOF) Secretary Benjamin Diokno said that the BSP is nearing its peak rate and that there could be a pivot towards the middle of the year.

Top index performers were Metro Pacific Investments Corporation (MPI) (+12.5%), Aboitiz Power Corporation (AP) (+12.1%), and Monde Nissin (MONDE) (+11.8%) while index laggards were AC Energy (ACEN) (-5.2%), Semirara Mining and Power Corporation (SCC) (-2.1%), and Globe Telecom (GLO) (-1.3%). The index breadth was positive with 26 gainers versus four losers. The average daily turnover value was PHP 6.8 billion. Foreigners were net sellers by PHP 45 million.

WHAT TO EXPECT THIS WEEK

We anticipate a volatile market and expect trading to go sideways with a downward bias on some profit-taking as the local bourse is nearing overbought levels. Nonetheless, this may be tempered by the expectation of further cooling US inflation, which suggests a slower pace of rate hikes moving forward.

Investors are also awaiting corporate earnings releases from the US as well as monitoring more data releases from China, as the latter reported nearly 60,000 deaths from COVID-19 after dismantling its zero-COVID policy in early December 2022.

STOCK CALLS FOR THE WEEK

Nickel Asia Corp. (NIKL) — BUY ON PULLBACKS

NIKL formed a head and shoulders bottom, an intermediate-term bullish pattern, of which a breakout through the resistance signals a reversal to a new uptrend. The measured price target after NIKL broke out of its head and shoulders bottom pattern is PHP 7.00.

Looking at the fundamentals, we reiterate that the growth in stainless steel production and the incentives and penalty programs imposed by the European and US governments continue to drive adoption rates for electric vehicles. Nickel prices can also remain elevated given the proposal by the Indonesian government to impose a progressive levy on the export of nickel pig iron and ferronickel.

Moreover, we believe NIKL’s foray into the renewable energy generation business is a long-term catalyst amid the tight power supply in the country. Accumulating once NIKL pulls back to PHP 6.40/PHP 6.30 is advisable. Set stop limit orders below PHP 6.00 and take profits at around PHP 7.20.

Robinsons Retail Holdings, Inc. (RRHI) — BUY ON BREAKOUT

Year-to-date, RRHI has rallied by as much as 9.1%. This was after the company disclosed that it will acquire an additional 4.4% stake in Bank of the Philippine Islands (BPI) worth almost PHP 20 billion, bringing the retail firm’s stake to 6.8%.

Despite the recent rally, RRHI’s share price has so far failed to surge past or even retest its immediate resistance levels of PHP 60.00/PHP 62.00. As for the fundamentals, amid a rising inflation environment, we turn to retailers, given their ability to pass on costs to their mid- to high-income target market.

We retain our forecasts for RRHI, as our outlook for the mall-based retailer remains largely intact amid: (i) favorable mobility trends and shifting wallet allocation conducive to RRHI’s growth; and (ii) a strong balance sheet position. Accumulating once RRHI breaks above PHP 62.00 is advisable. Set stop limit orders below PHP 58.50 and take profits at around PHP 70.00/PHP 72.00.

PLDT Inc. (TEL) — BUY ON BREAKOUT

Despite the recent rally, TEL’s share price failed to retest its key resistance level of PHP 1,500.00. Currently, TEL is showing signs of profit-taking at the PHP 1,400.00 level, which suggests that the recent rally may just be a dead cat bounce. We believe that TEL needs to surge past PHP 1,500.00 for the rally to be sustainable.

As for fundamentals, we still see TEL as best positioned in the current competitive and regulatory environment among telcos under our coverage. We expect the capex overrun will have limited impact on TEL’s core telco business and that its balance sheet can absorb worst-case conditions relating to the overspend.

Accumulating once TEL breaks above PHP 1,500.00 is advisable. Set stop loss orders below PHP 1,400.00. Take profits at around PHP 1,700.00 to PHP 1,900.00. For long-term investors, our target price for TEL is PHP 1,550.00

PSEi TECHNICAL ANALYSIS

Resistance: 7,000 / 7,500

Support: 6,600 / 6,800

The PSEi surged again, supported by strong volume. The market is now heading towards 7,000 for the first time since April 2022. The technical indicator MACD (Moving Average Convergence Divergence) confirms the bullish momentum, with the MACD hovering above both the signal and zero lines. With the RSI (Relative Strength Index) currently at 67, there could be some pullback this week. Take note that the PSEi must stay above 6,400 for the ongoing rally to be sustained.

TRADING PLAN

Continue to hold. Accumulate more once the market pulls back to 6,800. Set stop limit orders below 6,400.

KEY DATA RELEASES

Monday, January 16, 2023
– Overseas Filipino (OF) cash remittances year-on-year for November 2022 (consensus estimate: 4.2%; actual for October 2022: 3.5%)