Stock Market Weekly: Upward bias for this week following rally in US markets

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) inched up by 1.64% week-on-week (w-o-w) to close at 6,618.69 (+106.76 points). The market mostly traded in the green as investors digested less hawkish signals from the Bangko Sentral ng Pilipinas (BSP). The BSP kept the target Reverse Repurchase (RRP) rate at 6.50% and signaled a cut in interest rates is possible as early as August 2024.

This is as the BSP revised downwards its baseline inflation forecast to 3.8% (previous: 4.0%) and 3.7% (previous: 3.5%) for 2024 and 2025, respectively. On the international front, US April 2024 inflation was cooler at 3.4% (previous: 3.5%). China stimulus measures also lifted the market as its Ministry of Finance started selling CNY 1 trillion (USD 138 billion) of long-term special government bonds on May 17, 2024.

However, gains were capped as investors digested the results of the MSCI Quarterly Index Review for May 2024, wherein the Philippines got a slight country downweight (-0.027%). There were no additions to the MSCI Philippines Standard Index, while Aboitiz Equity Ventures, Inc. (AEV) was deleted. For the MSCI Philippines Small Cap Index, ACEN Corporation (ACEN) was added, while SP New Energy Corporation (SPNEC) and Cebu Air, Inc. (CEB) were deleted. All changes will be implemented as of the close of May 31, 2024 (effective June 3, 2024).

WHAT TO EXPECT THIS WEEK

This week, we anticipate the market to trade sideways with an upward bias following last week’s rally in the US markets, which saw the Dow Jones Industrial Average (DJI) closing above 40,000, and after China announced efforts to stabilize its property sector.

The People’s Bank of China (PBoC) announced that it will provide CNY 300 billion (USD 42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs). Additionally, the PBoC also removed the floor on mortgage interest rates and lowered the minimum down payment ratio for first- and second-time home buyers.

The market will also consider the Federal Open Market Committee (FOMC) meeting minutes, which will provide further guidance on the interest rate direction of the US Fed. Furthermore, investors will also keep an eye on key economic data such as the PH Budget Balance and US manufacturing PMI.

Resistance: 6,700/6,800

Support: 6,500/6,400

ANALYSIS

The PSEi rose by +1.64% w-o-w to close at 6,618.69. The market rebounded, forming a higher high as the 50-day MA proved to be a strong support. However, the benchmark index is still trading below the 100-day and 200-day MA. If bulls continue to dominate, the PSEi could retest the next resistance levels around 6,700 to 6,800. Otherwise, if the bears dominate, the PSEi could retrace to the next support levels around 6,500 and 6,400.

STOCK CALLS FOR THE WEEK

ACEN Corp. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 27.66

After establishing support around PHP 3.10, ACEN rebounded and continued to rally by as much as 48%, breaking above the 50-day and 100-day moving averages. Currently, the stock is hovering at an overbought condition with the technical indicator RSI at 72.76.

For a more favorable risk-reward ratio, it is advisable to wait for the stock to pull back around PHP 4.00 to the 100-day MA before accumulating. Accumulate once the stock pulls back to this level. Set a stop-loss limit around PHP 3.68 and take profits around PHP 4.60.

AREIT, Inc. | BUY | FMSEC TARGET PRICE: PHP 36.70

After hitting a multi-year low last November 2023, AREIT rallied and created a series of higher highs and higher lows. Recently, the stock formed a symmetrical triangle pattern comprised of two converging trend lines — a descending upper trend line and an ascending lower trend line.

With this continuation pattern, AREIT’s uptrend may resume. Accumulating AREIT at current levels is advisable. Set stop limit orders around PHP 31.23 and take profits around PHP 39.04. For long-term investors, we have a fundamental target price of PHP 36.70 (+8.1% upside from the recent close).

Manila Water Co., Inc. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 27.66

After breaking above its two-year consolidation, MWC has rallied by as much as 50% year-to-date. The stock currently trades above key moving averages (50-day, 100-day, and 200-day). However, its RSI is already in the overbought region around 75.36. Hence, investors should wait for a healthy pullback and accumulate at better entry levels. Accumulate MWC once it pulls back around PHP 23.90. Set stop limit orders around PHP 21.99 and take profits around PHP 27.40.

KEY DATA RELEASES

1. Overall Balance of Payments (BOP) for April 2024 on Monday, May 20, 2024 (previous: USD 1173 million)

2. US Initial Jobless Claims as of May 18, 2024 on Thursday, May 23, 2024 (estimates: 220k)

3. FOMC Meeting Minutes for May 2024 on Thursday, May 23, 2024

4. US S&P Global Preliminary Manufacturing PMI for May 2024 on Thursday, May 23, 2024 (estimates: 49.9; previous: 50.0)

5. PH Budget Balance for April 2024, on Friday, May 24, 2024 (previous: PHP 195.9 billion)