Stock Market Weekly: Investors await BSP’s rate decision

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) closed at 6,331.56, dropping by 3.04% week-on-week or by 198.48 points. The local index tracked global markets as concerns of a looming recession remained amid the US Fed’s aggressive monetary policy tightening and high inflationary environment.

The market traded lower at the start of the week after the US inflation print for May 2022 came in higher than expected at 8.6% (consensus estimate: 8.2%) – its highest level since December 1981. Investors continued to be sellers ahead of the US Fed policy decision last Thursday, though a relief rally ensued after the announcement of the US Fed’s widely anticipated 75-basis-point rate hike.

Top index performers were Emperador Emperador Inc. (EMP) up 5.3%, Bank of the Philippine Islands (BPI) up 2.4%, and SM Prime Holdings (SMPH) up 2.0%, while the index laggards were Wilcon Depot Inc. (WLCON) down 15.3%, Converge (CNVRG) down 13.5%, and Megaworld Corporation (MEG) down 13.1%. The index breadth was negative, with six gainers versus 24 losers. The average daily turnover value was PHP 6.7 billion. Foreigners were net sellers by PHP 3.7 billion.

WHAT TO EXPECT THIS WEEK

The market is expected to trade sideways as investors wait for fresh catalysts amid persisting global recession fears. Any key policy rate surprises from the BSP Monetary Board meeting on Thursday, June 23, 2022, may likely dictate the direction of the market for the week. Investors expect a 25 basis-point increase in rates.

On the international front, the US will have a shortened trading week as markets close for the Juneteenth holiday on Monday.

STOCK PICKS FOR THE WEEK

SM Prime Holdings, Inc. (SMPH) — BUY

SMPH recorded double-digit revenue growth in its malls, offices, and hotels segments in the first quarter of 2022. Moreover, SMPH still has a large headroom for earnings recovery with its large mall exposure and a robust residential segment, which will both benefit from the economy’s full reopening. Accumulate SMPH once it breaks above PHP 40.0. Set cut loss below PHP 39.00 and begin taking profits at around PHP 42.5/PHP 43.0. If you are a long-term investor, set it at PHP 45.0.

Figaro Coffee Group, Inc. (FCG) — BUY

FCG expects to end this year with about 150 stores across all brands, and to reach 300 by the end of 2029. Its share price is showing signs of bottoming out. FCG is retesting its 50-day moving average price, while the technical indicator MACD (moving average convergence divergence) is showing signs of turning bullish. Accumulate FCG once it breaks above PHP 0.56. Set cut loss below PHP 0.51. Take profit at around PHP 0.64/PHP 0.70.

Converge ICT Solutions, Inc. (CNVRG) — BUY

The stock is extremely oversold after breaking down below its PHP 21.50 support level. CNVRG benefits from the recently signed Republic Act No. 11659 amending the 85- year-old Public Service Act (PSA), which removes the 40% foreign ownership limit that applies to public service companies. Bargain hunters may accumulate at current prices and set tight stops below PHP 19.00.

PSEi TECHNICAL ANALYSIS

Resistance: 6,400 / 6,800

Support: 6,180 / 5,700

The PSEi broke another support level (6,400) last week, hitting another year-to-date low. The market is now poised to retest its 2021 support at around 6,180. Technical indicator MACD confirms the bearish momentum.

TRADING PLAN

Continue setting stop limit orders, especially below 6,400 to protect capital. The next support levels are at 6,180/5,700.

KEY DATA RELEASES

Thursday, June 23, 2022
– BSP interest rate decision (consensus estimate: +25 bps)