Stock Market Weekly: Upward bias on slowing US inflation

WHAT HAPPENED LAST WEEK

Last week, the market declined by 22.3 points week-on-week (w-o-w) to close at 6,625.26 (-0.34% w-o-w). The index mostly traded on profit-taking and cautious trading, as investors digested President Ferdinand “Bongbong” Marcos Jr.’s second State of the Nation Address (SONA) and the potential impact of the administration’s policies on some industries.

Furthermore, lower-than-expected earnings from retailers (i.e., Puregold Price Club, Wilcon Depot, and Robinsons Retail) kicking off 2nd quarter earnings season did not help trading sentiment. Finally, toward the end of the week, both the US Fed and the European Central Bank (ECB) raised policy rates as widely anticipated.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to continue trading sideways with an upward bias on positive spillover from the latest US PCE (Personal Consumption Expenditures) price index, which posted slower-than-expected growth at 4.1% y-o-y (May 2023: 4.6%; consensus estimate: 4.2%) on July 28, 2023.

However, following the stronger-than-expected showing in US GDP in the 2nd quarter, the recent PCE data contributes to mixed signals on the US Fed’s future policy path. On the local front, investors are expecting cooler Philippine inflation data for the month of June to be released on Friday, August 4 (May 2023: 5.4%; consensus estimate: 4.9%).

Then again, we note that for the third straight week, local fuel prices are again expected to increase by PHP 3.20 to PHP 3.40/ liter of diesel and PHP 1.70 to PHP 1.90/ liter of gasoline. Moreover, we expect investors to digest the results of the PSE rebalancing (effective August 7, 2023), where no changes were made in the composition of the main index.

Resistance: 6,750/6,800

Support: 6,400/6,600

ANALYSIS

Last week, the bears dominated as the PSEi pulled back and traded sideways with a downward bias. However, the 6,600 level proved to be a strong support area. Moreover, the PSEi traded above key moving averages (20-day, 50-day, 100-day, and 200-day) with the technical indicator moving average convergence/divergence (MACD) above the signal line and zero suggesting that the uptrend momentum is intact.

We believe that should the bulls dominate and the PSEi resume to rally, it can retest the 6,750 resistance, hence negating the current bearish sentiment in the market. Otherwise, if the market pulls back, it can retest the next support levels at around 6,600 to 6,400.

Lighten up if the PSEi bounces but fails to break above 6,750. Add to position once the market decisively breaks above 6,750.

STOCK CALLS FOR THE WEEK

Philippine Seven Corp. / BUY ON BREAKOUT | NO CONSENSUS TP

SEVN’s strong showing in earnings from the recent quarters increased the likelihood of a spillover of better earnings performance into the incoming quarters. Furthermore, SEVN increased its target stores to 400 in 2023 and doubled its allocated capital expenditures budget to PHP 4 billion in 2023 from PHP 2 billion in 2022.

Hence, we expect the counter to benefit from this expansion. As for price action, SEVN has been trading above key moving averages (50-day MA, 100- day MA, and 200-day MA) with 50-day MA acting as immediate support (~85.8). Its MACD is showing bullish potential, trading above zero. We think that the counter can retain its bullish trend only once it breaks above resistance at PHP 90.00. Accumulating once SEVN breaks above PHP 90.00 on strong volume is advisable. Set stop limit orders below PHP 82.80 and take profits at around PHP 103.50/PHP 104.40.

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

We upgraded our recommendation on AREIT, Inc. (AREIT) from HOLD to BUY. AREIT is now the largest REIT in terms of market capitalization in the Philippines. Its management has delivered on an aggressive asset injection plan, with AREIT’s total leasable area now standing at 710,310 sqm (higher by 4.65x since IPO) and valued at PHP 64 billion as of the 1st quarter of 2023.

This year, the counter is set to conduct its largest one-time asset infusion since its IPO, with properties worth PHP 22.5 billion. Our new target price (TP) for AREIT of PHP 36.70 implies a dividend yield of 5.7%/5.8%, based on full-year 2023 forecast/2024 forecast payout. This is justified vis-à-vis our DBS economics team’s forecast PH 10-year yield of 5.2% by end-2024F. Accumulating once AREIT breaks above PHP 35.00 on strong volume is advisable. Set stop limit orders below PHP 32.20 and take profits at around PHP 40.25/ PHP 40.60. For long-term investors, our target price for AREIT is PHP 36.70.

Cosco Capital, Inc. (COSCO)/ BUY ON PULLBACK | CONSENSUS TARGET PRICE: PHP 11.90

COSCO has been consolidating above its key moving averages (50-day, 100-day, and 200- day). News on COSCO’s REIT IPO before the end of 2023 has supported this uptrend as the counter bounced back from the PHP 5.10 support level earlier the previous week.

We expect the counter to continue trading sideways with a slight upward bias within the range of PHP 4.80 to PHP 5.35, especially given its bullish MACD trading above zero, which has recently crossed above the signal line, and its PHP 4.80 support level above long-term MAs (100-day and 200-day). However, with the technical indicator relative strength index (RSI) nearly overbought at ~61.64, the counter is likely to pull back and retest its support level at PHP 4.80. Accumulating once COSCO pulls back to PHP 4.80 on strong volume is advisable. Set stop limit orders below PHP 4.40 and take profits at around PHP 5.52/PHP 5.57.

KEY DATA RELEASES

1) S&P Global PH Manufacturing Purchasing Mangers’ Index (PMI) for July on Tuesday, August 1, 2023 (Jun 2023: 50.9)

2) S&P Global US Manufacturing PMI for July on Tuesday, August 1, 2023 (June 2023: 49.0; consensus estimate: 49.0)

3) US Initial Jobless Claims for July 29 on Thursday, August 3, 2023 (July 22: 221k)

4) PH Consumer Price Index (CPI) YoY for July on Friday, August 4, 2023 (June 2023: 5.4%; consensus estimate: 4.9%)

5) Change in US Nonfarm Payrolls for July on Friday, August 4, 2023 (June 2023: 209k; consensus estimate: 190k)

6) US Unemployment Rate for July on Friday, August 4, 2023 (June 2023: 3.6%; consensus estimate: 3.6%).