Stock Market Weekly: Investors keep an eye on US inflation 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange (PSEi) ended +2.78% higher week-over-week to close at 6,629.64 (+179.6 points). The market started the year in the green as investors digested a cooler December 2023 Philippine inflation at 3.9% (from November 2023’s 4.1%, estimate: 4.0%).

This is despite the following: (i) weaker-than-expected December 2023 China factory data (Manufacturing PMI: 49.0, estimate: 49.5); (ii) President Xi Jinping’s speech flagging economic headwinds; and (iii) hawkish Federal Open Market Committee (FOMC) meeting minutes, indicating that interest rates will remain higher for longer.

On January 3, 2024, the Philippine Stock Exchange (PSE) halted trading from 9:32 a.m. to 11:55 a.m., resulting in listless trading on the same day. The trading halt was due to a technical problem encountered due to the “inability of at least one-third (1/3) of the trading participants (TPs) to connect to PSE’s front-end order management system (FEOMS) and for some of these TPs, the inability to send orders to the trading system,” according to a statement by the PSE.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with a downward bias as the market digests the stronger-than-expected US jobs data (December 2023: +216k jobs), fueling the higher-for-longer narrative.

Investors will also be monitoring the upcoming US CPI report on Thursday, January 11, 2024, which is projected to come in slightly higher at 3.3% (November 2023: 3.1%) and is considered a key factor in determining the US Fed’s next course of action.

On the local front, fuel price rollbacks may partly lift investor sentiment, as gasoline prices are expected to fall by PHP 0.50 to PHP 0.15 per liter and diesel prices to remain the same or decrease by PHP 0.10 per liter.

Resistance: 6,400/6,750

Support: 6,200/6,400

ANALYSIS

The PSEi surged by +2.78%, breaking above the 6,600 resistance level. The market is currently trading above key moving averages (50-day, 100-day, and 200-day) with the technical indicator MACD above both zero and the signal line, indicating bullish momentum.

Nevertheless, the benchmark index is hovering near overbought conditions with the technical indicator RSI at 66. If the PSEi sustains its rally, it can revisit the next resistance levels at 6,750 to 6,800. If the PSEi pulls back, it can retrace towards next support levels around 6,600 and 6,400.

STOCK CALLS FOR THE WEEK

Converge ICT Solutions Inc.* | BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 13.30

In our latest company report titled, “Prepaid subscriber additions show strong momentum,” we maintain our BUY call on Converge ICT Solutions, Inc. (CNVRG) with a target price (TP) of PHP 13.30. In first nince months of 2023, CNVRG’s consolidated revenue reached PHP 26.2 billion (+7.2% year-on-year), driven by double-digit growth in enterprise and steady revenue from residential business.

At the net income level, earnings slightly beat our estimates on lower-than-expected net financing costs. For CNVRG, we saw its prepaid broadband segment pick up pace in the 3rd quarter of 2023 as it was able to expand the subscriber base by 78,623 during the period, led by Bida Fiber (+23,896 quarter-on-quarter) and Surf2Sawa (+28,020 quarter-on-quarter) as well as a pick-up in demand for FiberX (+35,214 quarter-on-quarter).

These brought total residential subscribers ahead of our full-year estimates at 2.048 million as of 9M23 (FY23F estimate: 2.068 million). For those planning to enter, accumulating once CNVRG breaks out of PHP 8.50 to its 50-day MA is advisable. Take profits at PHP 9.78 and set stop-limit orders at PHP 7.82. For long-term investors, we have a target price for CNVRG at PHP 13.30 (+66.25% upside from the recent close).

JG Summit Holdings, Inc.* | BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 55.00

JG Summit Holdings, Inc. (JGS) is set to execute a cash infusion worth over PHP 11 billion into its loss-making petrochemical unit, JG Summit Olefins Corp. (JGSOC), to bolster the turnaround of the segment and pay off maturing obligations. JGSOC produces substances used in the production of polymers found in everyday items like cookware, clothing, and construction materials.

In addition, the subsidiary also produces and exports biogas. Moreover, its core listed holdings are showcasing technical strength, with Universal Robina Corp. (URC) recently finding a bottom and trying to break out of its head and shoulders pattern, while Robinson Land Corp. (RLC) surged by more than 15%. JGS declined by more than 27% to hit a multi-year low not seen since the crash in 2020 at PHP 34.65 in recent months, amid weakness in the broader market, while also tracking the performance of its core listed holdings URC and RLC.

Traders can enter once JGS retests the breakout point of its consolidation pattern at around P39.30. Set stop-limit orders below P35.15 and take profits around P45.20.

Ayala Land, Inc.* | BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 34.30

Ayala Land Inc. (ALI) recently broke ground in Nasugbu, Batangas, for its new 62-hectare eco-tourism estate called Arillo, expanding its portfolio of master-planned estates. In its first five years of development, ALI has reportedly invested PHP 1.9 billion worth of capex for the project.

Arillo will be ALI’s 52nd estate and its first commercial and residential development on a mountainside, developing its footprint in the Western Batangas region. The planned estate will have a commercial district with a three-hectare retail town center, Seda’s first mountainside resort, lifestyle hubs, nature trails, and residential offerings from AyalaLand Premier.

ALI has been on an uptrend beginning July 2023 coming from a long-term downtrend since 2019. The stock is approaching its 52-week high of PHP 33.45, and a break above this level can signal a reversal in its long-term trend. However, we recommend being cautious with the stock as it is prone to profit-taking approaching the PHP 33.0/PHP 32.0 level. Accumulating once ALI breaks out near its 52-week high of PHP 33.45 to PHP 33.40 is advisable. Set stop-limit orders at 8% below average cost and take profits at 15% above average cost.

KEY DATA RELEASES

1. PH unemployment rate for November 2023 on Tuesday, January 9, 2024 (Oct 2023: 4.2%)

2. PH exports year-on-year (YoY) for November 2023 on Wednesday, January 10, 2024 (estimate: – 11.3%; Oct 2023: -17.5%)

3. PH imports YoY for November 2023 on Wednesday, January 10, 2024 (estimate: – 4.3%; October 2023: 4.4%)

4. US CPI YoY for December 2023 on Thursday, January 11, 2024 (estimate: 3.3%; November 2023: 3.1%)

5. US initial jobless claims as of January 6, 2024, on Thursday, January 11, 2024

6. PH Money Supply M3 SRF y-o-y for November 2023 on Friday, January 12, 2024 (October 2023: 8.2%)

7. PH Bank Lending y-o-y for November 2023 on Friday, January 12, 2024 (October 2023: 6.9%)

8. PH Bank Lending net of RRPs y-o-y for November 2023 on Friday, January 12, 2024 (October 2023: 7.1%).