Stock Market Weekly: Low trading volumes seen this week 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) declined by 1.37% week-on-week (WoW), closing at 7,314.23, down by 101.50 points. Investor sentiment was negatively impacted by rising US 10-year treasury bond yields and the damage caused by Severe Tropical Storm Kristine.

The Department of Agriculture (DA) has estimated initial damages of approximately PHP 80.8 million in the industry, with the rice and corn sectors in the Bicol and MIMAROPA regions being the most affected. In local corporate news, Bank of the Philippine Islands (BPI) and Robinsons Retail Holdings, Inc. (RRHI) began the 3Q 2024 earnings season last week with mixed performances.

WHAT TO EXPECT THIS WEEK

This week, we anticipate the local stock market to trade sideways with a downward bias given the anticipated low trading volumes due to the observance of the All Souls’ and All Saints’ Day holidays. Investors will monitor the earnings reports of key index names early in the week. Internationally, the focus will be on the final week before the US Presidential elections and the release of US jobs data.

Resistance: 7,450 / 7,550

Support: 7,300

ANALYSIS

The PSEi dipped by 1.37% WoW, closing at 7,314.23 (-101.50 points). The index retested a key support level at 7,300 after breaking below its uptrend line. Momentum indicators continue to signal short-term weakness marked by a return to neutral levels. Nevertheless, the bourse remains in an uptrend, trading above key moving averages (200-day, 100-day, and 50-day). We expect the index to consolidate as it hovers at the top end of its pandemic range.

STOCK CALLS FOR THE WEEK

Nickel Asia Corp. (NIKL) | SELL | Consensus Target Price: PHP 4.00

Based on our scenarios, NIKL will likely be removed from the PSEi, as it will rank below the 36th position. This is mainly due to lower market capitalization attributed to a 25.72% decline in the Volume Weighted Average Price (VWAP) from January 2, 2024, to October 15, 2024. Additionally, NIKL’s net attributable income dropped by 53% year-on-year (YoY) in full year 2023 due to the low price of nickel ore, which has contributed to the decline. NIKL is out of the index if AREIT Inc. (AREIT) or China Banking Corp. (CBC) or both enter. We suggest lightening positions to avoid potential unfavorable impacts from possible PSEi deletion.

China Banking Corp. (CBC) | BUY | No Consensus Target Price

CBC’s inclusion in the PSEi is highly probable but depends on meeting the liquidity criteria. Currently, CBC has ranked in the 3rd quartile for median daily value traded in eight out of 10 months in 2024. We believe CBC is likely to meet the nine-month requirement, with robust trading activity driven by its strong operating performance and easing BSP monetary policy. Moreover, market anticipation of its index inclusion has boosted CBC’s median daily value traded to PHP 46.5 million from October 1 to 24 – a 1.9x increase from September, marking its most liquid month thus far. Accumulating CBC at current levels is advisable.

Wilcon Depot, Inc. (WLCON) | SELL | FirstMetroSec Target Price: PHP 18.5

We foresee WLCON’s removal from the PSEi only if CBC and AREIT meet the requirements to be added to the index. This scenario hinges on (i) CBC meeting the liquidity criteria and (ii) AREIT’s market capitalization being calculated based on the latest number of outstanding shares rather than a time-weighted average.

We also expect downward price pressure on WLCON following the earnings announcement. WLCON may report weak 3Q 2024 earnings results due to low demand for home improvement products, exacerbated by frequent unfavorable weather. We suggest lightening positions to avoid potential unfavorable impacts from possible PSEi deletion.

KEY DATA RELEASES

1. PH Money Supply M3 YoY for September 2024 on Thursday, October 31, 2024 (previous: 5.5%)

2. PH Bank Lending YoY for September 2024 on Thursday, October 31, 2024 (previous: 9.3%)

3. US Core PCE Price Index YoY for September 2024 on Thursday, October 31, 2024 (estimates: 2.6%; previous: 2.7%)

4. PH Foreign Direct Investment for July 2024 on Thursday, October 10, 2024 (previous: USD 400 million)

5. US Change in Nonfarm Payrolls for October 2024 on Friday, November 1, 2024 (estimates: 120k; previous: 254k)

6. US Unemployment Rate as of October 2024 on Friday, November 1, 2024 (estimates: 4.1%; previous: 4.1%)

7. US ISM Manufacturing for October 2024 on Friday, November 1, 2024 (estimates: 47.6%; previous: 47.2%)