Stock Market Weekly: PSEi may trade downward

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) saw its largest decline since the June bottom, falling by 2.34% week-on-week (WoW) to close at 7,142.96 (-171.27 points). Investors mainly took cues from overseas sentiment as weakness in US tech shares spilled over to the local market.

Moreover, polling bets have started to price in a Donald Trump Jr. presidency, which has historically been negative for emerging markets such as the Philippines. Meanwhile, rising bond yields and the continued depreciation of the peso back to the PHP 58.0 level also dragged on market performance.

WHAT TO EXPECT THIS WEEK

This week, we expect a volatile week ahead with a downward bias as investors continue to monitor a slew of corporate earnings releases and key data results throughout the week. In particular, consensus estimates see upticks in local unemployment and inflation rates.

On the foreign front, the outcome of the US presidential elections will weigh on the market later in the week. A potential Republican victory may cause heavy selling pressure in anticipation of tighter trade policies, while a Democratic win could be cheered by investors for maintaining the status quo on policies and trade ties. Additionally, Fed expectations of a 25-basis-point policy rate cut to 4.75% may provide some near-term relief. We also expect increased trading activity as investors align their portfolios with the results of the MSCI quarterly rebalancing announcement on November 7, 2024.

Resistance: 7,200 / 7,300

Support: 7,100 / 7,000

ANALYSIS

The PSEi dipped by 2.34% WoW, closing at 7,142.96 (-171.27 points). The index broke below key support levels at 7,300 and 50-day moving average (MA) following large foreign selling pressure. Momentum indicators have started to trend near bearish zones, signaling continued short-term weakness. Nevertheless, the bourse remains in a long-term uptrend, trading above key MA (200-day, 100-day).

STOCK CALLS FOR THE WEEK

RL Commercial REIT, Inc. | BUY ON SUPPORT | CONSENSUS TARGET PRICE: PHP 7.10

In September 2023, the Securities and Exchange Commission (SEC) approved RCR’s PHP 32.92-billion property-for-share swap just three months after filing, which we view as favorable for the REIT. Although a temporary pullback may occur due to the 5.5% discount at which the placement was priced (relative to the announcement date’s close), we see this move by RLC as beneficial for RCR.

The transaction increased RCR’s public float to 35.93%, providing flexibility for future asset injections, especially as RLC plans to infuse commercial assets into RCR’s portfolio. Accumulating RCR on support around PHP 6.00 to PHP 5.80 is advisable. Take profits 15% above your average cost and set stop-loss limits 8% below your average cost.

Semirara Mining and Power Corp. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 38.00

In 2023, the Philippines remains heavily reliant on coal-fired power, with 62% of its energy sourced from coal, making it the most coal-dependent country in Southeast Asia. We believe the Department of Energy’s (DOE) plans to cancel 105 renewable energy contracts due to project delays will prolong coal’s role as the primary energy source in the Philippines. This development supports SCC’s main coal mining business. Accumulating on pullback or around the PHP 33-33.50 level is recommended. Take profit around PHP 38.53 and set a stop-loss limit at PHP 30.82.

AREIT, Inc. | SELL | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 41.25

We see two plausible scenarios for AREIT inclusion in the index. First, if CBC fails to meet liquidity requirements and NIKL is removed, AREIT would be next in line based on market capitalization. Second, if market capitalization is calculated using the latest outstanding shares instead of a time-weighted average, AREIT’s 841-million share issuance from its property-for-share swap with ALI could secure its spot. Accumulating AREIT once it pulls back near the 50-day MA around PHP 38.00 or the next support at PHP 36.60 is advisable. Take profits 15% above average cost and set stop-loss limits 8% below average cost.

KEY DATA RELEASES

1. PH Inflation Rate year-on-year YoY for October on Tuesday, November 5, 2024 (estimates: 2.2%; previous: 1.9%)

2. PH Unemployment Rate for September on Wednesday, November 6, 2024 (estimates: 4.4%; previous: 4.0%)

3. PH 3Q 2024 GDP YoY on Thursday, November 7, 2024 (estimates: 6.4%; previous: 6.3%)

4. US Fed Interest Rate Decision on Friday, November 8, 2024 (estimates: 4.75%; previous: 5.00%)