Stock Market Weekly: Sideways trading with an upward bias amid shortened trading week

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) ended 1.55% lower week-on-week to 6,499.68 (-102.49 points) on low volume for most of the week as investors looked for catalysts.

On Friday, it shed a hefty 145.07 points (-2.18% day-on-day) due to quarter-end rebalancing activities. Aboitiz Equity Ventures (AEV), JG Summit (JGS), and Ayala Land Inc. (ALI) closed near week-to-date lows. Monde Nissin’s (MONDE’s) share price also plummeted after announcing a core net income of PHP 6.6 billion (-19.6% y-o-y) – well below estimates – and a reported net loss of PHP 13.0 billion following the impairment of Marlow Food’s valuations. The company also disclosed that it would pursue an equity restructuring program to offset deficits.

Top index performers were Wilcon Depot Inc. (WLCON) (+9.9%), Semirara Mining and Power Corp. (SCC) (+6.9%), and PLDT (TEL) (+5.2%), while index laggards were Monde Nissin (MONDE) (-13.5%), JG Summit (JGS) (-8.7%), and Ayala Land Inc. (ALI) (-7.0%). The index breadth was positive with 15 gainers versus 14 losers. The average daily turnover value was PHP 4.3 billion. Foreigners were net buyers by PHP 2.3 billion.

WHAT TO EXPECT THIS WEEK

We expect the market to trade sideways with a slight upward bias on a shortened trading week amid the Holy Week holidays. Investors are anticipating a deceleration for the March 2023 inflation print at 8.0% (BSP’s forecast: 7.4% to 8.2%) compared to the prior month’s 8.6% y-o-y. This should guide the pace of policy rate decisions moving forward as BSP Governor Felipe Medalla earlier said that the central bank remains cautious and needs to see enough low month-on-month inflation.

STOCK CALLS FOR THE WEEK

MREIT, Inc. (MREIT) — BUY ON BREAKOUT

We see the REIT sector benefitting from a US Fed/BSP pivot or pause in the next six months, with MREIT among our preferred picks in the sector. We have a BUY call on the counter, with a target price of PHP 15.30, implying an attractive dividend yield of 7.1%/7.1% on our forecasted payout for 2023 and 2024.

However, we advocate patience in accumulating the stock at this time. We prefer to wait for better entry points – when the US Fed and BSP are close to a pause – to potentially lock in better yields and, at the same time, position to benefit from capital appreciation as interest rates peak and economic growth risks come to the fore.

Looking at the price action, MREIT is mostly trading between PHP 14.00 to PHP 15.00. With the stock coming from a short-term rally in December 2022, it is likely that the stock will resume its rally once MREIT breaks above PHP 15.00. Accumulating once MREIT breaks above PHP 15.00 is advisable. Set cut loss below PHP 13.85. Take profit at around PHP 17.30/PHP 18.00.

Puregold Price Club, Inc. (PGOLD) — BUY

PGOLD formed a head and shoulders bottom, an intermediate-term bullish pattern with a measure target price of PHP 35.2 to PHP 35.8 according to Technical Insight, our automated chart pattern recognition program.

The recent rebound in PGOLD’s share price can be attributed to the company posting a 13.5% y-o-y increase in 2022 net income to PHP 9.29 billion – ahead of consensus and our expectations – as the economy reopened and in-person activities normalized.

As for company guidance, we like PGOLD’s healthy balance sheet and strong free cash flow generation, and we believe the increased dividend payout is a step toward regaining investor confidence. Accumulating PGOLD at current levels is advisable. Set stop limit orders below PHP 30.30. Take profit at around PHP 37.80/PHP 38.00, PHP 40.00 for long-term investors.

Global Ferronickel Holdings, Inc. (FNI) — BUY ON BREAKOUT

FNI posted a net income of PHP 2.2 billion (+9% y-o-y) driven by the commercial operations of its Palawan mine and acquisition of 20% interest in Guangdong Century Tsingshan Nickel Industry Co. Ltd. (GCTN) in China.

However, revenues came in at PHP 6.7 billion (-13% y-o-y) driven by adverse

weather, ameliorated by the rise in medium-grade ore prices and favorable foreign exchange. As for company guidance, FNI expects to expand its nickel ore production by 20% amid the addition of its Palawan mine with an annual capacity of 1.5 million wet metric tons (WMT), complementing its Surigao mine with an existing annual capacity of 7.5 million WMT.

For the stock’s price action, we think that FNI must break above PHP 2.70 for a rebound to be sustained. Accumulating once FNI breaks above PHP 2.70 is advisable. Set cut loss below PHP 2.48. Take profit at around PHP 3.10/PHP 3.20.

PSEi TECHNICAL ANALYSIS

Resistance: 6,600 / 6,800

Support: 6,400

The market has mostly traded within 6,400-6,600 for the past two weeks, validating the two levels as its current support and resistance, respectively. The market must stay above the 200-day moving average (MA), or 6,492, or else the PSEi will likely further correct. A break above 6,740/6,800 will result in the reversal of the market’s short-term downtrend.

TRADING PLAN

Gradually accumulate once the PSEi trades back above 6,800.

KEY DATA RELEASES

Monday, April 3, 2023
– PH S&P Global Manufacturing Purchasing Managers’ Index (PMI) for March 2023 (February 2023: 52.7)
– US S&P Global Manufacturing Purchasing Managers’ Index (PMI) for March 2023 (preliminary: 49.3)

Wednesday, April 5, 2023
– PH Consumer Price Index (CPI) Year-on-Year for March 2023 (consensus estimate: 8.0%; February 2023: 8.6%)

Thursday, April 6, 2023
– US Initial Jobless Claims as of Aril 1, 2023 (prior: 198k)

Friday, April 7, 2023
– US change in nonfarm payrolls for March 2023 (consensus estimate: 240k; February 2023: 311k)
– US unemployment rate for March 2023 (consensus estimate: 3.6%; February 2023: 3.6%)