Stock Market Weekly: We anticipate a market rebound 

WHAT HAPPENED LAST WEEK

Last week, the index decreased by 433.61 points to 5,862.59 (-6.89% week-on-week), marking its lowest close since October 2022 due to weak macroeconomic data and the PSEi rebalancing results.

The 4Q 2024 GDP print fell to 5.2%, below Bloomberg’s 5.8% estimate and the government’s 6%-6.5% target, due to weather disruptions and delayed effects of monetary policy hikes. Additionally, Februarys Philippine Stock Exchange index (PSEi) rebalancing led to declines as index weights were adjusted for Ayala REIT (AREIT) and China Bank (CBC). These new entries’ higher market capitalizations compared to the removed stocks Nickel Asia Corporation (NIKL) and Wilcon (WLCON) contributed to selling activity.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to rebound following four consecutive weeks of decline due to bargain hunting. Nonetheless, sentiment will remain cautious given the macroeconomic weakness indicated by the 4Q 2024 GDP and the recent tariffs imposed by the US on Canada, China, and Mexico, which could potentially lead to a trade war. All eyes are on the inflation data for January 2025, which the Bangko Sentral ng Pilipinas (BSP) projects to settle within the range of 2.5% to 3.3%, aligning with its target range of 2% to 4%.

Resistance: 6,000 / 6,200

Support: 5,800

ANALYSIS

The PSEi slid below its 6,000 support amid heavy selling pressure driven by lingering negative sentiment following the lower-than-expected GDP print and PSEi rebalancing results, ending the week down 6.89% w/w at 5,862.59 (-433.61 pts). It trades below key moving averages (20-day, 50-day, 100-day, and 200-day), reflecting sustained bearish sentiment. Momentum indicators show strong downward momentum as its RSI has reached peak oversold levels at 19.65, while MACD stays in bearish territory with no signs of reversal. Immediate support is seen at 5,800, while the nearest resistance is at 6,000. A failure to hold 5,800 could trigger further downside, while a relief rally may face stiff resistance at previous support levels. With the risk-reward skewed to the downside, accumulating near support is advisable.

STOCK CALLS FOR THE WEEK

AREIT, Inc. (AREIT) TRAILING STOPS | CONSENSUS TARGET PRICE: PHP 41.33

AREIT is trading at a 5.74% dividend yield, implying a premium relative to the PH 10-year bond’s 6.23% yield (as of January 30, 2025) and indicating that much of the positives for the counter are already priced in.

Furthermore, we anticipate a “sell on news” reaction that could add downward pressure, given AREIT’s recent price movement when the rebalancing was announced. Therefore, we recommend implementing trailing stops for AREIT in the short term and reassess for a more favorable entry point once the stock stabilizes. For those with exposure, implementing trailing stops is advisable.

Wilcon Depot Inc. (WLCON) BUY | FMSEC TARGET PRICE: PHP 16.00

WLCON is in a downtrend and trading below all key moving averages (20-day, 50-day, 100-day, and 200-day MA), while its MACD is below the signal line and the RSI is in the oversold territory. Although these indicators suggest bearish momentum, the oversold condition could signal a potential rebound, making current levels a good entry point.

Investors looking to accumulate WLCON may consider entering at current levels, near or at today’s close, January 31, 2025. Take profits 15% above your average cost and set stop-loss limits 8% below your average cost.

Manila Electric Company (MER) BUY ON PULLBACK | CONSENSUS TARGET PRICE: PHP 480.14

MER has established a strong support level at PHP 500.00, with the stock unable to break above this threshold after multiple attempts. Recently, MER fell below its short-term moving averages (20-day and 50-day), indicating that bearish sentiment may persist in the near term. Additionally, momentum indicators suggest continued weakness amid subdued investor appetite.

Hence, we view this as an opportunity to accumulate MER. Accumulating MER once it pulls back to as low as the PHP 450.00 support is advisable. Take profits at PHP 517.50 and set stop-loss limits around PHP 414.00.

KEY DATA RELEASES

1. PH S&P Global Manufacturing Purchasing Managers’ Index (PMI) for January on Monday, February 3, 2025 (previous: 54.3)

2. US S&P Global Manufacturing PMI Final on Monday, February 3, 2025 (estimates: 50.1; previous: 49.4)

3. PH Inflation Rate year-on-year for January on Wednesday, February 5, 2025 (estimates: 2.7%; previous: 2.9%)

4. PH Unemployment Rate for December on Thursday, February 6, 2025 (previous: 3.2%)

5. US Initial Jobless Claims for February on Thursday, February 6, 2025 (estimates: 217K; previous: 207K)

6. US Unemployment Rate for January on Friday, February 7, 2025 (estimates: 4.1%; previous: 4.1%)

7. PH Foreign Exchange Reserves for January on Friday, February 7, 2025 (previous: USD 106.8 billion)