Stock Market Weekly: US debt ceiling woes to influence market

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) rose by 1.31% (+86.40 points) week-on-week to close at 6,664.55. Investor sentiment improved following the Bangko Sentral ng Pilipinas’ (BSP) decision to pause rate hikes during its recent monetary board meeting, keeping interest rates steady at 6.25%.

The BSP also lowered its 2023 inflation forecast to 5.5% (from 6.0%). Moreover, BSP Governor Felipe Medalla signaled that the central bank would likely keep interest rates unchanged in the succeeding policy meetings. The positive news around the US debt ceiling negotiations also spilled over to the local market, which pulled the index higher.

Top index performers were GT Capital (GTCAP) (+8.4%), PLDT (TEL) (+4.7%), and Jollibee Foods Corp. (JFC) (+4.5%), while index laggards were Puregold (PGOLD) (-3.9%), LT Group Inc. (LTG) (-3.6%), and Universal Robina Corporation (URC) (-3.3%). The index breadth was positive with 24 gainers versus six losers. The average daily turnover value was PHP 4.1 billion. Foreigners were net buyers by PHP 230.8 million.

WHAT TO EXPECT THIS WEEK

We expect the market to trade sideways with a slight downward bias as investors await further news on the US debt ceiling negotiation and other key data releases. Local fuel prices are also expected to increase by about PHP 0.50 to PHP 0.70 per liter of diesel and PHP 0.70 to PHP 0.90 per liter of gasoline.

PSEi TECHNICAL ANALYSIS AND TRADNG PLAN

Resistance: 6,800

Support: 6,600 / 6,400

The PSEi rebounded last week and is back above the 6,600 level. It is worth taking note, though, that the 100-day moving average (MA) (~6,687) again acted as an immediate resistance level last week. We believe that only once the PSEi breaks above the 100-day MA or 6,800 will there be a reversal of the market’s short-term downtrend.

Gradually accumulate once the PSEi trades back above 6,800.

STOCK CALLS FOR THE WEEK

Ayala Corp. (AC) — BUY ON BREAKOUT

AC is showing signs of bullish recovery after the stock broke above the 50-day moving average (MA) price earlier this month (May 2023). AC’s share price has rallied by as much 9.7% month-to-date after the company’s reported income came in at PHP 10.2 billion (+31% year-on-year), driven by the strong growth from its banking and property segments.

Excluding the one-off items, AC’s core net income came in at PHP 9.4 billion (+61% y-o-y), in line with consensus estimates. AC’s share price also benefitted after the company had the top weight increase in the MSCI PH Standard Index Review last May 12, 2023 (effective June 1, 2023). Meanwhile, the technical indicator MACD confirms the bullish momentum. We think that a rally will occur should AC break above its 100-day and 200-day MAs (~PHP 680) as well as the PHP 710.00 resistance level.

Accumulating once AC breaks above PHP 710.00 is advisable. Set stop limit orders below PHP 653.00 and take profits at around PHP 817.00/PHP 840.00.

Megaworld Corp. (MEG) — BUY

The company’s strong 1st quarter 2023 earnings as well as the Bangko Sentral ng Pilipinas’ (BSP) pause in rate hike drove MEG’s share price to rise by as much as 5.5% last week, which resulted in the formation of a double bottom, an intermediate-term bullish pattern.

According to Technical Insight, our automated chart pattern recognition program, the measured price target after MEG broke out of its double bottom pattern is PHP 2.21 to PHP 2.25. As for management guidance, MEG plans to increase its project launches by 33% y-o-y to PHP 60 billion in 2023. The company aims to focus on its residential segment, projecting reservation sales of around PHP 130 billion for the year, compared to PHP 119 billion in pre-sales in the previous year.

In addition, MEG has allocated PHP 55 billion in capex, a nearly 20% increase from 2022’s budget. Accumulating MEG at the current levels is advisable. Set stop Limit order/s below PHP 1.92. Take profit at around PHP 2.30/PHP 2.40

Petron Corp. (PCOR) — BUY ON BREAKOUT

PCOR reported 1st quarter 2023 net income of PHP 3.4 billion (-6% y-o-y) amid the 16% y-o-y decline in crude prices and higher financing cost, ameliorated by the mark-to-market valuation of its commodity hedges.

PCOR registered fuel demand and sold consolidated volumes of 28.6 million barrels (+11% y-o-y). The lower net income has resulted in PCOR retesting its support level around PHP 3.25. PCOR is mostly trading between PHP 3.25 to PHP 3.70. With the stock coming from a short-term rally in March 2023, it is likely that the counter will resume its pace once PCOR breaks above PHP 3.70.

On the other hand, if PCOR breaks below PHP 3.25, the stock can retest the PHP 3.00 level. As for company guidance, despite the external challenges, PCOR remains confident in achieving full financial recovery this year driven by the consistent rise in fuel demand. Accumulating once PCOR breaks above PHP 3.70 is advisable. Set cut loss below PHP 3.40. Take profit at around PHP 4.25/PHP 4.50.

KEY DATA RELEASES

Tuesday, May 23, 2023
– US S&P Manufacturing Purchasing Manager’s Index (PMI) for May 2023 (consensus estimate: 50.0; actual for April 2023: 50.2)

Thursday, May 25, 2023
– US Initial Jobless Claims as of May 20, 2023
– PH Budget Balance for April 2023 (March 2023: -210.3 billion)