Stock Market Weekly: Slight downward bias up ahead 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) inched up by +0.20% week-on-week (w-o-w), closing at 6643.18 (+13.54 points). The market started the week trading sideways as investors digested robust local jobs data, with the unemployment rate coming in at 3.6% in November 2023 (October 2023: 4.2%; November 2022: 4.2%).

However, the local bourse slid mid-week after Mitsubishi Corp. sold over 8.6 million Ayala Corp. (AC) shares in a block sale priced at PHP 634. The index was lifted by Financials (+3.45%) late in the week due to data revealing improved asset quality for Philippine banks, with the system-wide non-performing loan (NPL) ratio declining from 3.44% in October 2023 to 3.41% in November 2023.

On the international front, market participants shrugged off stronger-than-expected US Consumer Price Index (CPI) data at 3.4% in December (estimates: 3.1%), despite fueling the higher-for-longer monetary policy narrative.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to continue trading sideways with a slight downward bias as investors anticipate the speeches of several US Fed officials, especially after the stronger-than-expected US inflation print (3.4%; estimates: 3.1%).

Moreover, markets will also monitor the implications of the newly elected Taiwanese president, Lai Ching-te, from the incumbent Democratic Progressive Party (DPP), and the escalating conflict in the Middle East following the US air strikes on Saturday, January 13, 2024, in Yemen.

In addition, the lack of catalysts may cause investors to initiate profit-taking, with the PSEi trading at strong resistance near the 6,700 level. On the local front, Overseas Filipino Workers’ (OFWs) cash remittances are expected to decline from USD 3.0 billion in October 2023 to USD 2.7 billion in December 2023.

Resistance: 6,700/6,800

Support: 6,600/6,400

ANALYSIS

The PSEi inched up by +0.20% w-o-w, hovering above the 6,600 support level, as well as key moving averages (20-day, 50-day, 100-day, and 200-day). The market continues to indicate bullish momentum with the technical indicator MACD above zero and the signal line.

Nevertheless, the benchmark index is hovering near overbought conditions with the technical indicator RSI at 63.7. If the PSEi sustains its rally, it can revisit the next resistance levels at 6,700 to 6,800. If the PSEi pulls back, it can retrace towards the next support levels around 6,600 and 6,400.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands (BPI): BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 123

The Bangko Sentral ng Pilipinas (BSP) has approved the planned merger of Bank of the Philippine Islands (BPI) and Robinsons Bank Corp. (Rbank or RBC). Upon the effectiveness of the merger, BPI will issue common shares equivalent to roughly a 6% stake to the shareholders of RBank, Robinsons Retail Holdings Inc. (RRHI), and JG Summit Holdings Inc. (JGS), in return for absorbing the net assets of RBank.

As cautioned in our last trader’s playbook titled, “9M23 earnings beat consensus,” we highlighted the formation of a head and shoulders pattern indicating a bearish reversal for BPI. The stock has dropped by around 20% from its year-to-date high of PHP 120.40. Nevertheless, it found support around the PHP 96.00 to PHP 100.00 region. With the stock currently in consolidation mode, it is advisable to buy once BPI pulls back to around the 78.60% fib level to PHP 100.00 support level.

Cosco Capital, Inc. (COSCO): BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 12.60

Cosco Capital Inc.’s (COSCO) Board of Directors approved the conglomerate’s participation in a consortium bidding for the PHP 170.6 billion public-private partnership (PPP) project aimed at upgrading the Ninoy Aquino International Airport (NAIA).

This consortium includes key players in air transport infrastructure such as Asian Infrastructure and Management Corp., Philippine Skylanders International, Inc., and PT Angkasa Pura II. COSCO also announced its plans to venture into the renewable energy (RE) sector through the acquisition of the 8-megawatt (MW) Catuiran hydropower project in Oriental Mindoro.

After reaching its 52-week high of PHP 5.44 in August 2023, COSCO declined by as much as 19%, reaching PHP 4.40 on December 12, 2023. The PHP 4.40 price point supported the counter, causing the stock to rebound, passing the PHP 4.95 mark.

Recently, a “Price Crosses Moving Average” chart pattern formed on COSCO, with the stock crossing above its 200-day moving average (MA). This is an indicator of a long-term bullish momentum on the counter which may signify a possible break above the current price. At current levels, the counter seems to be already at an overbought condition, with RSI trending on the downside. We recommend waiting for the stock to pull back for more upside potential.

Petron Corp. (PCOR): BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 4.00

Petron Corp. (PCOR) expects its net income to reach PHP 12 billion in 2023 (+80% y-o-y) from PHP 6.7 billion in 2022, on the back of normalizing oil prices. In the first nine months of 2023, PCOR recorded a 16% y o-y increase in its consolidated income to PHP 9.5 billion due to sustained volume growth.

Volume improved across major business segments, with an 8% y-o-y growth in consolidated retail sales volume in the Philippines and Malaysia. In terms of price action, the stock dropped by as much as 35% after reaching its year-to-date high of PHP 4.70 in mid-2023.

After establishing a short-term support around the PHP 3.20 level, PCOR rallied by as much as 10%, breaking above the 50- and 100-day moving averages. The stock is currently retesting the 200-day MA; however, with RSI currently near overbought level (~69), the stock is due for a pullback.

KEY DATA RELEASES

1. PH Overseas Cash Remittances for November 2023 (estimates: USD 2.7 billion; October 2023: USD 3.0 billion) on Monday, Jan 15, 2024.

2. US Retail Sales for December 2023 (estimates: 0.3%; November 2023: 0.3%) on Wednesday January 17, 2024.

3. US initial jobless claims as of January 13, 2024 on Thursday, January 18, 2024.