Stocks to remain volatile

Published February 22, 2021, 6:00 AM

by James A. Loyola

Trading at the stock market this week is seen to be volatile due to a confluence of factors including earnings reports from some blue chip companies. 

Photo credit: https://www.pse.com.ph

“A shortened trading week (EDSA Revolution Anniversary on February 25) interspersed with earnings announcements is the ultimate breeding ground for volatility and profit-taking,” said online brokerage firm 2TradeAsia.com.

“Further add the fact that funds are expected to window-dress month-end portfolios within the next few sessions—truly, next week will be interesting, at least on a volume perspective,” it noted.

The brokerage said large caps are expected to report their 2020 performances this week including Ayala Land, BDO Unibank and SM Investments Corporation which comprise over 26 percent of the PSEi basket.

“We caution that volatility usually accompanies informative events such as earnings releases, but this fourth quarter reporting season will be doubly crucial as it will provide insight to whether an inflection point can he seen in as early as the first half of 2021,” 2Tradeia said.

It added, “Note also that the mentioned reporting firms are leaders in their respective industries—which may set the tone far property, banking, and conglomerates heading into March.”

Meanwhile, Philstoks Financial Senior Analyst Japhet Tantiangco said that, “Next week, investors are expected to watch out for the government’s decision with respect to the quarantine measures of the country by March 2021.”

He explained that, “The local bourse may rise if the government decides to shift the remaining areas in the country under GCQ, primarily Metro Manila, to MGCQ, together with plans on how to mitigate the spread of COVID-19 amid the further reopening of the economy.”

“Positive developments with respect to the Philippines’ efforts to obtain COVID-19 vaccines are also seen to boost market sentiment,” said Tantiangco.

According to 2TradeAsia.com, “market sentiment ultimately longs for vaccine rollouts; and so long as the national vaccination program remains trailing its peers in the region, valuations may likely remain on hibernation mode.”

BDO Chief Market Strategist Jonathan Ravelas said “Last week’s close at 6,926.41 signals the current rally remain fragile and susceptible to sell-offs. This highlights that the market is having difficulty to sustain itself above the 7,000 levels. Should the sell-off continues expect a retest the 6,700/6,800 levels.”

Top online brokerage firm COL Financial has a BUY rating on First Philippine Holdings Corporation because of its 68 percent ownership in First Gen Corporation noting that “We view FPH as a cheaper way to own FGEN. FPH is trading at a huge 54 percent discount to its market-based net asset value of P165 per share. 

On the other hand, Abacus Securities Corporation favors FGEN because “natural gas plants will play a complementary role as the government seeks to expand the share renewables in the country’s power mix.”

It noted that, government’s ambitious target for renewable energy sources “needs natural gas capacity to grow as well because plants running on the fuel can quickly respond to stabilize the grid due to the intermittent nature of solar and wind energy.”

“So FGEN’s decision to push through with its LNG facility will only ensure the continued operations of its existing power plants but it will also pave the way for additional capacity to support the growth of renewables,” Abacus explained.

Meanwhile, both COL and Abacus are recommending shareholders of Cebu Air to subscribe to its stock rights offering of convertible preferred shares.

“Although we have a HOLD rating on CEB, we think that common stockholders who still own the stock past the ex-date on February 22, should subscribe to the rights offering. This is because we deem that the preferred shares are more attractive than the underlying common shares given its lower offer price (vs the current market price of the common shares), 6 percent dividend yield, and conversion feature,” COL said. 

Abacus said “We see the preferred shares offering to be beneficial for long-term shareholders since the offering will provide attractive yields in a low interest rate environment. This will also provide investors significant upside on the conversion from preferred to common shares as CEB and the industry gradually recover.”

 
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