Stock Market Weekly: Robust US labor market, easing recession fears influence PSEi

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) ended 1.55% higher week-on-week to 6,667.97 (+101.58 points). The market started the year in the green as investors cheered the higher manufacturing Purchasing Mangers’ Index (PMI) at 53.1 in December 2022 (November 2022: 52.7) and the slightly cooler December 2022 local inflation print at 8.1% (BSP estimate: 7.8%-8.6%; actual for November 2022: 8.0%).

However, gains were capped as investors took profits following strong US and local jobs data, which fueled speculation of continued hawkish sentiment from the US Fed and the Bangko Sentral ng Pilipinas (BSP).

Top index performers were Monde Nissin (MONDE) (+11.6%), Converge (CNVRG) (+10.2%), and JG Summit (JGS) (+6.9%), while index laggards were Alliance Global (AGI) (-4.2%), Globe (GLO) (-2.5%), and International Container Terminal Services (ICT) (-2.0%). The index breadth was positive with 20 gainers versus 10 losers. The average daily turnover value was PHP 5.3 billion. Foreigners were net buyers by PHP 1.1 billion.

WHAT TO EXPECT THIS WEEK

We expect the PSEi to trade sideways with an upward bias, following the rally in the US markets last week after data showed a robust labor market and easing recession fears.

Investors will also be monitoring the upcoming US Consumer Price Index (CPI) report on Thursday, January 12, 2023, which is projected to come in slightly lower at 6.6% and is considered a key factor in determining the US Fed’s next course of action.

Furthermore, domestic fuel price rollbacks may partly lift investor sentiment next week, as gasoline prices are expected to fall by PHP 0.50 to PHP 0.60 per liter, diesel prices by PHP 2.40 to PHP 2.60 per liter, and kerosene prices to decline by PHP 1.50 per liter. However, pending petitions for transport fare hikes, as well as the recent tranche of wage hike adjustments (in Cordillera, Cagayan Valley, Central Luzon, Eastern Visayas, and Davao) are likely to offset some downside pressures.

STOCK CALLS FOR THE WEEK 

MREIT, Inc. (MREIT) — BUY ON PULLBACKS

After its recent breakout, MREIT is now consolidating around PHP 13.40 to PHP 14.50, trading above its key moving averages (MA 20, 50, and 100). The technical indicator MACD also confirms the bullish momentum.

MREIT continues to provide steady yield and value-accretive growth hinged on: (i) high occupancy rate maintained at 95% as of end-Sep 2022; (ii) embedded rental escalation rates of 5-10% (5% for offices and 10% retail); (iii) long-term office leases with an overall Weighted Average Lease Expiry of 3.7 years as of Mar-2022; and (iv) a quality and resilient tenant base comprised of 75% BPOs.

MREIT has demonstrated its inorganic growth ability through two tranches of asset acquisitions, growing its gross leasable area (GLA) by 1.5x a year post-IPO. Accumulating once MREIT touches PHP 13.50 is advisable. Set stop limit orders below PHP 12.90. Take profit at around PHP 15.79/16.00.

D&L Industries, Inc. (DNL) — BUY ON PULLBACKS

DNL is on track to hit the measured price target of PHP 8.50 to PHP 8.80 that we mentioned from our previous report. As for company guidance, the management is optimistic that full year 2023 earnings will widely surpass the record net income booked in full year 18 (PHP 3.2 billion) amid the economic reopening and the expected launch of the company’s Batangas expansion plants in 2Q 2023, allowing DNL to ramp up its export business, which currently accounts for 33% of total revenues.

The reopening of the Chinese economy is also seen to boost exports to China which account for 5% of DNL’s overseas sales. Those who bought from our buying level of PHP 7.50 should continue to hold. Meanwhile, those looking to accumulate can buy DNL once the stock pulls back to PHP 8.00. Set stop limit orders below PHP 7.50 and take profits at around PHP 8.80/PHP 9.00.

Bloomberry Resorts Corp. (BLOOM) — BUY ON PULLBACKS

Though the stock broke above its two-year resistance level of PHP 8.00 and is now trading at overbought levels, it is optimal to wait for the pullback before accumulating. Meanwhile, those with exposure and who bought from our buying level can take some profits.

As for the fundamental outlook, BLOOM’s earnings performance is expected to sustain its strong recovery as it continues to benefit from the policy that allows vaccinated foreigners to enter the Philippines as well as the reopening of borders across Asia.

Similarly, the Philippine government’s stance of not implementing lockdowns moving forward allows BLOOM to resume their activities to full capacity, which will further improve the company’s mass table and electronic gaming machine volumes. Those who bought from our buying level of PHP 7.20 can begin taking profits. Meanwhile, those looking to accumulate can buy BLOOM once the stock pulls back to PHP 8.00. Set stop limit orders below PHP 7.60 and take profits at around PHP 9.00.

PSEI TECHNICAL ANALYSIS

Resistance: 6,800
Support: 6,400 / 6,600

The PSEi broke above 6,600. The technical indicator MACD confirms the bullish momentum, with the MACD line above both the trading and signal lines. However, the 6,800 level once again acted as a resistance with the market quickly pulling back to the 6,600 level. On a positive note, the sharp correction last Friday provides long-term investors enough room to accumulate.

TRADING PLAN

Gradually accumulate at current levels. Buy more once the PSEi breaks above 6,800. Set stop limit orders below 6,300.

KEY DATA ANALYSIS

Tuesday, January 10, 2023
– Philippine exports Year-on-Year for November 2022 (consensus estimate: 11.5%; actual for October 2022: 20.0%)
– Philippine imports Year-on-Year for November 2022 (consensus estimate: 3.1%; actual for October 2022: 7.5%)

Thursday, January 12, 2023
– US CPI YoY for December 2022 (consensus estimate: 6.6%; actual for November 2022: 7.1%)