Stock Market Weekly: Headwinds abound

WHAT HAPPENED LAST WEEK 

The Philippine Stock Exchange index (PSEi) managed to close marginally higher by 15.26pts, or up 0.2% week-on-week, to end at 6,726.14. The local bourse tracked its Asian peers at the start of the week amid the easing of COVID-19 curbs in Beijing and Shanghai. By mid-week, risk aversion due to inflation fears and monetary tightening weighed on sentiment after oil prices surged following the agreement of the European Union’s leaders to a phased ban on Russian oil. Bangko Sentral ng Pilipinas (BSP) Gov. Benjamin Diokno commented that May inflation likely settled between 5.0%-5.8%, which is faster than the 4.9% in April, due to higher costs of fuel and food as well as the depreciation of the peso.

The US labor market added 390,000 jobs in May 2022 (consensus estimate: 328,000; April 22: 436,000). The job gains came from the leisure and hospitality (84,000) and professional and business services (75,000) sectors. The unemployment rate stood at 3.6% (consensus estimate: 3.5%; April 22: 3.6%). Labor force participation rate rose to 62.3% (consensus estimate: 62.3%; April 22: 62.2%), with the total labor force now within 207,000 of pre-pandemic levels. Wage growth came in at 5.2% year-on-year (consensus estimate: 5.2%; April 22: 5.5%).

Top index performers were JG Summit Holdings (JGS) which was up 5.1%, Ayala Land Inc. (ALI) up 4.0%, and San Miguel Corporation (SMC) up 3.6%, while index laggards were Monde Nissin (MONDE) which was down 13.1%, Globe Telecom (GLO) down 7.8%), and Converge (CNVRG) down 3.9%. The index breadth was positive with 17 gainers versus 12 losers. Average daily turnover value was PHP 11.3 billion. Foreigners were net sellers by PHP 1.0 billion.

 WHAT TO EXPECT THIS WEEK 

The market is expected to face some downward pressure early in the week given the following: (i) the anticipated oil price hike by as much as PHP 6.40 to PHP 6.70/liter on diesel and PHP 2.65 to PHP 2.80/liter on gasoline pump prices; and (ii) the country’s May 2022 consumer price index (CPI) report on Tuesday estimated to settle at 5.4%, higher than the BSP’s 2-4% target range and full year forecast of 4.6%.

On the international front, investors will be closely monitoring the upcoming US CPI report on Friday, which is projected to come slightly cooler at 8.2%. Some economists say that with this, they can confirm that inflation has already peaked – a possible catalyst for the market.

STOCK PICKS FOR THE WEEK 

PLDT, Inc. (TEL) — BUY

After TEL’s trading range narrowed in the past months, the stock broke out with significant volume, confirming the formation of the bottom triangle pattern. According to Technical Insight, our automated chart pattern recognition program, the measured price target after TEL broke out of its bottom triangle pattern is PHP 2,230.00 to PHP 2,296.00. As for fundamentals, data service revenues are expected to grow, supported by rising market share in the fixed line segment. Accumulating TEL once it breaks above PHP 1,990 is advisable. Set stop limit orders below PHP 1,840.00 to protect capital. Take profit at around PHP 2,250/PHP 2,300. For long-term investors, our target price for TEL is PHP 2,150.00.

RL Commercial REIT, Inc. (RCR) — BUY

Given the visible and resilient cash flows, steady growth, foreign buying due to the recent MSCI rebalancing announcement, and the stock’s 21.7% correction year-to-date, accumulating RCR shares once price breaks above PHP 7.50 is advisable. Set stop limit orders below PHP 7.00 to protect capital. Take profit at around PHP 8.20/PHP 8.50

LT Group, Inc. (LTG) — BUY

Despite flattish first quarter 2022 net income, sustained strong performance in the banking and spirits business, together with better prospects in the tobacco, beverage, and property segments should provide a lift for the company looking forward. While the share price is still bearish, any break out supported with strong volume may result in a bullish reversal. Accumulating LTG once it breaks above PHP 9.00 is advisable. Set cut loss below PHP 8.50. Take profit at around PHP 10.00/PHP 10.50.

PSEi TECHNICAL ANALYSIS 

Resistance: 6,800 / 7,200

Support: 6,400 / 6,180

The 6,800 level proved to be a key resistance level for the market. This suggests that once PSEi breaks 6,800 and stays above it, strong bullish momentum will ensue. Together with 6,800, the 100 and 200-day moving average prices are likely resistance levels which the PSEi must break to fully confirm the reversal to an uptrend.

TRADING PLAN 

Continue setting stop limit orders, especially below 6,400 to protect capital. Support levels are currently at 6,400/6,180. Accumulate more once PSEi breaks above 6,800 and 7,200.

KEY DATA RELEASES 

Tuesday, June 7, 2022

• Philippine CPI year-on-year for May 2022 (consensus estimate: 5.4%; 4.9% in April 2022);

Thursday, June 9, 2022

• Philippine exports for April 2022 on Thursday, June 9, 2022 (consensus estimate: 10.6%; 5.9% in March 2022);
• Philippine imports for April 2022 on Thursday, June 9, 2022 (consensus estimate: 26.8%; 27.7% in March 2022);

Friday, June 10, 2022

• Philippine unemployment rate for April 2022 (5.8% in March 2022);
• US CPI YoY for May 2022 (consensus estimate: 8.2%; 8.3% in April 2022).