Stock Market Weekly: Sideways trading with a downward bias before Holy Week break

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) fell by 1.73% week-on-week (w-o-w) to close at 6,822.32 (-119.89 points). The local bourse started the week in the red, but managed to surge on Wednesday, tracking the US markets despite the hotter-than-expected US February 2024 inflation figures.

US headline and core inflation rates were reported at 3.2% and 3.8% y-o-y, respectively, slightly above their respective consensus of 3.1% and 3.7%. However, the PSEi dropped by 2.09% day-on-day on Friday, mirroring the downturn in US and Asian markets as sentiment soured due to the higher-than-expected February 2024 US producer price index (PPI).

Trading activity was also affected by the FTSE index rebalancing resulting in the surge in trading volume. On the local front, total January trade fell by -2.1% y-o-y to USD 16.09 billion (December 2023: -2.4%; January 2023: -1.2%). Exports grew to USD 5.94 billion (+9.1% y-o-y), while imports fell by -7.6% y-o-y to USD 10.16 billion. Full year 2023 foreign direct investments (FDI) also fell by -6.6% y-o-y to USD 8.9 billion.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with a downward bias ahead of the trading holidays on March 28 to 29 (in observance of the Holy Week). Investors will continue to monitor local earnings releases and will be on the lookout for the US Fed’s interest rate decision. In particular, the market expects the US Fed to maintain policy rates in their meeting on Thursday.

Resistance: 7,000/6,900

Support: 6,400/6,700

ANALYSIS

The PSEi retreated by 1.73% w-o-w to close at 6,822.32, snapping its seven-week winning streak. The benchmark index tried to breach the 7,000 resistance level but failed to sustain its bullish momentum.

The index broke below the 6,900 support level and is currently poised to retest the next support levels. Despite a volatile week, the PSEi continued to trade above key moving averages (50-day, 100-day, and 200-day).

If the bulls continue to dominate, the PSEi could once again retest the next resistance levels around 6,900 and 7,000. Otherwise, if the bears take over, it can retrace the next support levels at 6,700 to 6,400.

STOCK CALLS FOR THE WEEK

BDO Unibank, Inc. | BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 170.00

BDO Unibank, Inc. (BDO) posted a full-year 2023 net income of PHP 73.4 billion (+28.7% y-o-y), in line with our estimates, owing to growth across its core businesses. This translated to a return on common equity (ROCE) of 15.2% (full year 2022: 13.0%). BDO has been trading on an upward channel since June 2020 and has recently reached its all-time high price of PHP 157.80 last February 2024.

At current levels, BDO is trading above all key moving averages (MA) (50-day, 100-day, and 200-day), with its RSI at stable levels. Following the channel, the counter presents an opportunity to accumulate close to the identified support at PHP 145.00, near the 50-day MA.

This provides a sufficient upside of 17% from our fundamental target price of PHP 170.00. The counter presents an opportunity to accumulate close to the identified support at PHP 145.00, near the 50- day MA. Alternatively, longer-term investors can also enter when it pulls back at PHP 135.00 for higher return potential. Set stop limit orders at 8% below average cost and take profits at 15% above average cost.

PLDT Inc. | TRAILING STOPS | FMSEC TARGET PRICE: PHP 1,430.00

TEL shares gapped up as investors saw an opportunity to accumulate following the latest disclosure on the securities class action suit, which signaled that it was close to settling the lawsuit filed in the US District Court for the Central District of California.

On March 7, 2024, the Court presiding over the US Class Action “entered an order granting Plaintiff’s motion for preliminary approval of the settlement” the telco entered on February 16, 2024, to resolve the class action. Investors may also be positioning ahead of TEL’s ex-dividend date on March 20, 2024.

After trading sideways between 50% and 60% fib since December 2023, TEL has finally broken out of its consolidation pattern and hit our fundamental target price of PHP 1,430. Furthermore, TEL successfully broke above its 78% fib retracement and is currently hovering above its moving averages (50-day, 100-day, and 200-day). Nevertheless, its RSI is already at overbought conditions.

Emperador, Inc. | BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 20.50

FTSEI announced its annual February rebalancing last February 19, 2024, wherein Emperador, Inc. (EMI) will be removed from the FTSE All-Cap index, effective as of the close of March 15, 2024. This resulted in a waterfall decline of ~20% for the counter as active funds realigned their portfolios.

EMI has broken through all major supports, posting a new 52-week low at PHP 16.40. Currently, it hovers in oversold territory (with an RSI of 14.35) and remains below all key moving averages (including the 50-day, 100-day, and 200-day).

Consequently, we recommend accumulating on further dips resulting from index rebalancing activities. Accumulating once EMI closes today near support levels is advisable. Set stop limit orders at 8% below the average price and take profits at 15% above average price. For long-term investors, FirstMetroSec has a fundamental target price of PHP 20.5 (+25% upside from the recent close).

KEY DATA RELEASES

1. US FOMC interest rate decision on Thursday, March 21, 2024 (estimates: no change in rates)

2. US Initial Jobless Claims as of March 16, 2024, on Thursday, March 21, 2024 (prior: 209k)

3. US S&P Global preliminary manufacturing purchasing managers’ index (PMI) for March 2024 on Thursday, March 21, 2024 (estimates: 51.8; February 2024: 52.2)