By James A. Loyola
Investors trading in the local stock market this week are seen to be more cautious in light of the growing numbers of COVID-19 cases in the country while waiting to see if the Bangko Sentral meeting on interest rates will yield any surprises.
“Downside risk for next week will be worries over ‘second-wave’ of COVID-19 and the geopolitical tensions still coming in horizon,” said Philstocks Financial Research Associate Piper Tan.
However, Tan noted that, “the value turnover from last week, averaging at P9.2 billion versus the year-to-date average of P6.5 billion, signals a conviction for market investors to stay in the market amidst of uncertainty and the COVID-19 ‘second wave.’”
He added that, while the BSP interest rate decision will be released this week, “I think investors have already priced in this decision as the BSP hinted that the rates are appropriate right now.”
Tan pointed out though that it is not set in stone yet because BSP also said its decision will be subject to prevailing market conditions.
He expects the PSEi “to move between the dynamic support at the 100-day moving average (6,250), placing the resistance at 6,750 or the dynamic 200-day moving average.”
Abacus Securities warned that, based on the Buffett Indicator, “both the All-Shares Index and PSEi are nearly at the level they were just before the lockdowns were imposed, but the economic prospects have worsened since then.”
“While the market cap to GDP (gross domestic product) ratio is still in the conventionally undervalued range, it will take time for this value to be unlocked, which would require the return of robust economic activity,” Abacus added.
It noted that, “The timeframe for this remains uncertain, given the recent extension of the GCQ for Metro Manila and most of Luzon. Restrictions on transport and recreational activity and the continued rise in Covid cases still discourage consumers and create costly inefficiencies for businesses.”
Thus, the firm advised that, “We reiterate our call for investors to wait for dips to slowly accumulate on select issues, as it is likely for this ratio to stay within this 50 percent to 75 percent moderately undervalued range until next year at the earliest.”
Among stocks that it is recommending during this period is Megaworld Corporation since the firm “is in the best position to outperform its peers during the lockdown, due to its strong office segment and relatively smaller exposure to the OFW (overseas Filipino Workers) market.”
For the same reason, COL Financial is also rating Filinvest Land a BUY. It said FLI derives only 10 percent of its operating profit from malls while its office leasing business is still seeing demand from Chinese offshore gaming operators which account for 20 percent of its office assets—the highest exposure among listed property companies.
“FLI’s relatively high exposure to the office leasing business is positive for FLI as this cushions the impact of lower mall and residential revenues. Recall that FLI’s office leasing business accounted for 40 percent
of FLI’s operating profit in 2019,” COL said.
Abacus is also recommending EastWest Bank since “those with patience and a view towards the bank’s 2021 performance stand to gain a lot if they start slowly accumulating on dips.”
It noted that, “East West’s optimism that its record-profit year has only been delayed to 2021 appears to have the fundamentals to back it up, despite the current economic climate. Moreover, the selloff in the past months has seen the stock’s valuation plummet to 0.4 times price to adjusted book value.”