Stock Market Weekly: Sideways trading with an upward bias

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) surged by 2.88% week-on-week (w-o-w) to close at 6,161.89 (+172.62 points) as investors priced the US Fed’s recent policy decision to hold rates steady in the week prior.

In addition, the country’s October inflation rate slowed down to 4.9% y-o-y, much lower than the 5.6% consensus and the 5.1%-5.9% BSP forecast, while 3rd quarter 2023 GDP posted an upward surprise of 5.9%, which beat the street’s forecast of 4.7%.

The market was mostly in the green last week despite sluggish volumes and the slight uptick in unemployment rate at 4.5% (August 2023: 4.4%), amid multiple earnings releases.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with a slight upward bias on further earnings and data announcements as well as the results of the MSCI rebalancing review. Investors are expecting that the BSP will hold rates this Thursday following the recent October inflation and 3rd quarter 2023 GDP print. On the international front, the market similarly expects a further deceleration in the US October inflation rate.

Resistance: 6,200/6,400

Support: 6,000/5,700

ANALYSIS

The PSEi surged by +2.88% w-o-w, sustaining its rally the previous week. However, the volume remained tepid at PHP 3.1 billion. The benchmark index traded below key moving averages (50-day, 100-day, and 200-day) with 50-day acting as its immediate resistance.

Furthermore, the technical indicator MACD broke above the signal line but remained below zero. If the PSEi sustains last week’s rebound, it can retest the next resistance levels at 6,200 to 6,400. Otherwise, if the bears dominate, it can retrace towards the next support levels around 6,000 and 5,700. Lighten up if the PSEi bounces but fails to break above 6,400. Add to position once the market decisively breaks above 6,400.

STOCK CALLS FOR THE WEEK

Aboitiz Equity Ventures, Inc./ BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 55.20

AEV expressed an optimistic look for the remainder of the 2023, guided by the company’s strategic planning process, for all its business units. Notably, around 60% of the earnings contributions from subsidiaries comes from AP, AEV’s power segment.

AEV aims to balance the mix with expectations from the expansion plans for AIC, the Citi consumer business integration into UBP’s system, and the USD 1.8 billion acquisition of Coca-Cola Beverages Philippines, Inc. (CCBP) shares, which may bear fruit in the next few years.

AEV’s capital extensive projects are in line with AEV’s portfolio diversification strategy and the company’s goal of being the Philippines’ first techglomerate, with interests in power, banking, food, real estate, infrastructure, and fast-moving consumer goods (FMCG).

For those looking to accumulate, buying AEV at the immediate resistance levels of PHP 50.0 is advisable. Take profits at around PHP 55.58 and set stop order limits below PHP 45.0

Semirara Mining and Power Corp. / BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 39.39

For 4th quarter 2023, SCC’s coal segment is expected to improve on the back of the supply crunch in Indonesia, increasing Indian demand, and restocking of commercial grade inventory. Meanwhile, for the power segment, performance is seen to remain robust amid the expected rise in power consumption due to the El Nino.

In terms of growth prospects, SCC has said that the company is looking into diversifying in higher forms of mining, specifically gold, copper, and nickel. As for price action, SCC is currently trading below key moving averages (50-day, 100-day, and 200-day) with MACD still below zero and signal line, indicating bearish momentum for the stock.

However, SCC recently hovered around oversold conditions, hence, we expect the stock to bounce back. Accumulate only once SCC breaks above PHP 30.15 on strong volume. Set stop loss limit at around PHP 27.7 and take profits around PHP 34.70.

Manila Electric Company / BUY ON PULLBACK | CONSENSUS TARGET PRICE: PHP 386.25

MER has sustained its uptrend beginning early-2023. The stock is currently trading above 100-day MA with MACD poised to turn up, hence, there is a high likelihood that MER’s uptrend can be sustained. MER’s strong performance in recent quarters had been largely driven by its power generation segment which delivered over 11,171GWh (+6% y-o-y) in the first nine months of 2023, attributable to improved plant availability and fresh contributions from two solar plants in Rizal and Ilocos Norte.

With the company’s recent acquisition of SP New Energy Corp. (SPNEC), its generation mix will shift towards renewable energy, in line with its low-carbon energy transition journey. Those who bought at our buying level around the 100- day MA should continue to hold.

Meanwhile, those looking to accumulate can buy once MER pulls back around the 100-day MA. Set stop limit orders at 8% below the average cost and take profits at 15% above average cost.

KEY DATA RELEASES

1. US Consumer Price Index (CPI) y-o-y for October on Tuesday, November 14, 2023 (estimates: 3.3%; September 2023: 3.7%)

2. MSCI Quarterly Index Review on Wednesday, November 15, 2023

3. OF cash remittances YoY for September 2023 on Wednesday, November 15, 2023 (estimates: 2.3%; August 2023: 2.7%)

4. BSP interest rate decision on Thursday, November 16, 2023 (estimates: no change in rates)

5. US Initial Jobless Claims as of November 11, 2023, on Thursday, November 16, 2023 (estimates: 220k; previous: 217k)