Stock Market Weekly: US bond yield surge signals local cautiousness 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) ended lower by -1.63% week-on-week (WoW), closing at 6,496.32, a decrease of 107.49 points. Investors’ sentiment remained cautious following December’s inflation rate at 2.9%. While it was still within the 2–4% target range and the 2.3–3.1% forecast of the Bangko Sentral ng Pilipinas (BSP), the inflation rate exceeded the consensus forecast of 2.6% and marked an increase from November’s 2.5%.

Meanwhile, the improvement in November’s unemployment rate to 3.2% (from October’s 3.9%) failed to buoy sentiment. Additionally, investors digested the US Federal Reserve’s meeting minutes, reflecting the possibility of maintaining elevated interest rates amid persistent inflation risks.

On Friday last week, volumes were muted as the United States observed the national day of mourning for former President Jimmy Carter. The US labor market added 256k jobs in December 2024—better than the consensus estimate of 160k additions and higher than November 2024’s +212k.

Most job gains came from healthcare (+46k), government (+33k), and social assistance (+23k) sectors. The unemployment rate printed lower at 4.1% (est. 4.2%; November 2024: 4.2%), while the labor force participation rate came in at 62.5% (November 2024: 62.5%).

WHAT TO EXPECT

This week, we anticipate the market to trade sideways with a downward bias, as the US 10-year bond yield rose by 8.1 basis points (bps) day-on-day (DoD) to 4.77%. Investors are also awaiting the inauguration of President Donald Trump on January 20, 2025, with focus on his initial policy pronouncements.

Additionally, the local market will likely respond to crude oil price data and the US December inflation data, set to be released on January 15, 2025, which is forecasted to show a slight uptick. With these uncertainties, the PSEi is likely to remain range-bound, with cautious trading ahead of these key events.

Resistance: 6,800 / 6,600

Support: 6,300 / 6,400

ANALYSIS

The PSEi pulled back by 1.63%, dragged by heavy foreign outflows as it retested the key resistance zone around 6,600 to close at 6,496.32 (-107.49). Volume continues to be weak as the bourse trades below key moving averages (50-day, 100-day, and 200-day), with momentum indicators offering little comfort.

However, as highlighted in prior weeks, we recommend accumulating at current depressed and key support levels as we await a more robust turnaround.

STOCK CALLS FOR THE WEEK

Converge ICT Solutions, Inc. | BUY ON SUPPORT | FMSEC TARGET PRICE: PHP 20.50

In line with the company’s partnership with US tech giant Supermicro to pioneer AI-powered data centers in the Philippines, we expect CNVRG to experience long-term growth. This growth will be driven by its data centers implementing AI computing capabilities and intensive deep learning tasks to support AI applications in various business processes.

Buy at key support levels: PHP 14.0–15.5.

Set stop limit orders: 8% below average cost

Take profits: 15% above average cost

Wilcon Depot Inc. | LIGHTEN POSITIONS | FMSEC TARGET PRICE: PHP 16.00

WLCON’s ranking by full market capitalization is now 33rd, just above the 36th place benchmark for index deletion. With Nickel Asia Corp. (NIKL) certain to be excluded from the index (rank 39), China Banking Corporation (CBC) is set to enter the PSEi. A second candidate rising above 25th place could further pressure WLCON’s position, with AREIT as the most likely contender.

Action: Lighten positions to mitigate risks from potential index deletion

Nickel Asia Corp. | BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 37.80

NIKL’s market capitalization ranking has dropped to 39th, with its Volume Weighted Average Price (VWAP) falling by 42% year-to-date. As this is below the benchmark for index inclusion, NIKL’s exclusion is confirmed, regardless of CBC’s entry.

KEY DATA RELEASES

1. US PPI year-on-year for December 2024 on Tuesday, January 14, 2025 (estimates: 3%; previous: 3%)

2. PH Cash Remittances for November 2024 on Wednesday, January 15, 2025 (previous: USD 3.08 billion)

3. US Inflation Rate year-on-year for December 2024 on Wednesday, January 15, 2025 (estimates: 2.8%; previous: 2.7%)

4. US Imports and Exports year-on-year for December 2024 on Thursday, January 16, 2025

5. US Initial Jobless Claims for January 2025 on Thursday, January 16, 2025 (estimates: 210k; previous: 201k)

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)