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Stock Market Weekly: Sideways trading with downward bias
Investors are expecting possible market catalysts this week, including the local fuel price increases, overseas Filipino remittances data, and corporate earnings releases in the US.
By First Metro Securities Research
The PSEi is expected to trade sideways with a slight downward bias as investors await market catalysts including the Aug 2022 overseas Filipino remittances report as well as China’s 3Q 2022 Gross Domestic Product (GDP) release. Local fuel prices are also expected to increase by about PHP 2.70 to PHP 3.00 per liter of diesel, PHP 0.80 to PHP 1.10 per liter of gasoline, and PHP 2.70 to PHP 3.00 per liter of kerosene. At the same time, further volatility can be expected as investors take their cue from the US 2Q 2022 corporate earnings releases this week.
WHAT HAPPENED LAST WEEK
The Philippine Stock Exchange index (PSEi) closed 0.46 percent lower week-on-week to 5,904.75 (down 27.44 points) on below-average volumes and persistent fears of a global recession. After declining 1.68 percent on Monday, the benchmark index managed to post marginal gains from Tuesday to Friday despite the widening of the country’s trade deficit and the hotter-than-expected US inflation print. Investors also weighed BSP Governor Felipe Medalla’s comment about a possible rate hike of 50 basis points (bps) to 75 bps in their next meeting.
Top index performers were BDO Unibank (BDO) up 6.8 percent, Robinsons Land Corporation (RLC) up 5.0 percent, and Pure Gold Price Club Inc. (PGOLD) up 4.1 percent. Index laggards were Monde Nissin (MONDE) down 8.2 percent, JG Summit Holdings Inc. (JGS) down 6.5 percent), and PLDT (TEL) down 5.3 percent. The index breadth was negative, with 12 gainers versus 18 losers. The average daily turnover value was PHP 3.3 billion. Foreigners were net sellers by PHP 310.9 million.
WHAT TO EXPECT THIS WEEK
The PSEi is expected to trade sideways with a slight downward bias as investors await market catalysts including the Aug 2022 overseas Filipino remittances report as well as China’s 3Q 2022 Gross Domestic Product (GDP) release. Local fuel prices are also expected to increase by about PHP 2.70 to PHP 3.00 per liter of diesel, PHP 0.80 to PHP 1.10 per liter of gasoline, and PHP 2.70 to PHP 3.00 per liter of kerosene. At the same time, further volatility can be expected as investors take their cue from the US 2Q 2022 corporate earnings releases this week.
STOCK PICKS FOR THE WEEK
DMCI Holdings, Inc. (DMC) — BUY
Year-to-date, DMC’s share price is up by as much as 26 percent and is currently holding its uptrend despite challenging market conditions. Regarding fundamentals, D.M. Consunji Inc. (DMCI), the construction and infrastructure arm of DMC, partnered with Japanese tunnel contractor Nishimatsu Construction Co. Ltd., and bagged its first subway project valued at PHP 21.21 billion. DMCI’s first subway project should boost its order book and further improve its contribution to DMC’s earnings from its current 6-percent share. As of 1H22, DMCI had an order book of PHP 43.7 billion, largely comprised by its joint venture projects and has historically contributed 8 percent to DMC’s earnings pre-pandemic. Accumulating DMC at the nearest support area at PHP 9.6/PHP 9.7 is advisable. Set cut loss below PHP 9.2 and begin taking profits at PHP 11.0/PHP 11.5.
Eagle Cement Corp. (EAGLE) — SELL ON BREAKDOWN
San Miguel Corp. (SMC) announced the approval of its board of directors of the acquisition of 88.5-percent interest in EAGLE. The approved acquisition price for the share purchase agreement is at PHP 22.02/share. SMC will undertake a mandatory tender offer for the minority-owned shares of EAGLE once the Philippine Competition Commission approves the acquisition.
It is worth taking note that if more than 90 percent of EAGLE is tendered then a possible delisting may occur. Once the tender offer is completed and the SMC group acquires more than 90 percent of the total outstanding capital stock of EAGLE, the latter said that it will seek the approval of its shareholders to apply for the voluntary delisting of its shares.
Current holders may begin taking profits to avoid possible volatility ahead of the likely tender offer. We advise to begin taking profits. The next support levels are at PHP 18.50/PHP 16.00. Those more aggressive can take profits on the break below PHP 18.50.
Cemex Holdings Philippines, Inc. (CHP) — SELL ON BREAKDOWN
CHP formed a top triangle-top wedge in its daily chart, an intermediate-term bearish continuation pattern. The measured price target after CHP broke down is from PHP 0.45 to PHP 0.50 according to Technical Insight, our automated chart pattern recognition program. Lightening positions once CHP breaks below P0.62 is advisable. The next support level is at PHP 0.58.
PSEI TECHNICAL ANALYSIS
Resistance: 6,000
Support: 5,400 / 5,700
The market dropped last week, failing to sustain its rebound from the previous week. This makes the probability of the downtrend to resume unless the PSEi breaks and stays above 6,000. A break below 5,700 would likely result in the retest of 5,400.
TRADING PLAN
Continue setting stop limit orders. The next support level is at 5,700.
KEY DATA RELEASES
Monday, October 17, 2022
– Overseas Filipino cash remittances Year-on-Year for August 2022 (consensus estimate is at 3.0 percent; actual for July 2022 is 2.3 percent)