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Stock Market Weekly: Inflation to dampen sentiment
A few things will continue to dampen the mood of investors this week: the prospect of continued inflation and elevated oil prices, which has hovered around USD 120. The US Fed is also expected to increase rates by 50 bps.
By First Metro Securities Research
WHAT HAPPENED LAST WEEK
The Philippine Stock Exchange index (PSEi) closed at 6,530.04, dropping 211.36 points, or by 3.14% week-on-week. The local index tracked global markets after the European Central Bank (ECB) announced its plans to raise rates in July and September to combat inflation – the first time in 11 years. Also, the continued increase in international oil prices (above USD 120/barrel), as well as the hike in domestic pump prices last week, weighed heavily on investor sentiment.
Top index performers were AC Energy (ACEN) up 6.3%, Wilcon Depot (WLCON) up 1.9%, and Globe Telecom (GLO) up 1.6%, while index laggards were Converge (CNVRG) down 7.5%, Megaworld (MEG) down 6.1%, and International Container Terminal Services (ICT) down 6.1%. The index breadth was negative with five gainers versus 23 losers. Average daily turnover value was PHP 5.2 billion. Foreigners were net sellers by PHP 2.6 billion.
WHAT TO EXPECT THIS WEEK
The market is expected to trade downwards following the release of the higher-than-expected US inflation print for May 2022 at 8.6% (consensus estimate: 8.3%; April 2022: 8.3%) released last Friday. Contributing to continued risk-off sentiment will be the next round of domestic pump price hikes (diesel: PHP 4.20-PHP 4.40/L; gasoline: PHP 1.40-PHP 1.60/L) on Tuesday, June 14. Investors will also be closely monitoring the interest rate decision by the US Federal Reserve on Thursday, June 16 (consensus estimate is 50 bps).
STOCK PICKS FOR THE WEEK
SM Investments Corp. (SM) — BUY
SM continues to be in an advantageous position to leverage the economy’s reopening, given its large exposure across sectors where we expect recovery to be robust (e.g., retail, real estate, and banks). Accumulate SM once it breaks above the 100-day moving average price at PHP 893.00. Set cut loss below PHP 840.00. Take profit at around PHP 1,000.00/PHP 1,100.00.
Petron Corp. (PCOR) — BUY
PCOR booked core net income of PHP 1.8 billion in the first quarter of 2022 (1Q2021: PHP 55 million), is above consensus estimates, mainly due to higher sales volume and pump prices. Despite the better-than-expected earnings, PCOR’s share price is still trading near its key support area at around PHP 3.00. PCOR will benefit from the increase in mobility and the completion of its powerplant this year, which will allow the company to efficiently generate steam and power for the Petron Bataan Refinery. The optimal strategy is to assume the consolidation period will continue and buy at or near the key support level. Accumulate PCOR at current levels until PHP 3.10. Set stop limit orders below PHP 2.95. Take profit at around PHP 3.80/PHP 4.00.
PhilWeb Corp. (WEB) — BUY
Because vaccinated foreigners were finally allowed to enter the Philippines and gaming companies were given clearance to resume activities at a higher capacity for as long as they comply with minimum health standards, PhilWeb’s share price rebounded. It formed an intermediate-term bullish pattern, a symmetrical triangle, with a measured target price of PHP 5.10 to PHP 5.40. Accumulate WEB once it breaks above PHP 4.20 (buy on breakout). Set cut loss below PHP 3.95. Take profit at around PHP 5.00/PHP 5.40.
PSEi TECHNICAL ANALYSIS
Resistance: 6,800 / 7,200
Support: 6,400 / 6,180
The market failed to sustain its three-week rebound and formed a rising wedge, a bearish continuation pattern. Once the PSEi continues to pull back and breaks below 6,400, the market will likely retest 6,180.
TRADING PLAN
Set stop limit orders, especially below 6,400 to protect capital. Support levels are currently at 6,400/6,180. Accumulate more once the PSEi breaks above 7,200.
KEY DATA RELEASES
Wednesday, June 15, 2022
- US retail sales (excluding auto) month-on-month for May 2022 (consensus estimate: 0.8%; 0.6% in April 2022);
Thursday, June 16, 2022
- US central bank interest rate decision (consensus estimate: 50 bps increase)
Friday, June 17, 2022
- Overseas Filipino (OF) remittances year-on-year for April 2022 (consensus estimate: 3.5%, 3.2% in March 2022)