Stock market seen to remain weak

This week, the local stock market is seen to continue being weighed down by fears of a fresh surge in COVID-19 cases as government reports more new cases of the more contagious Delta variant.

“The local market may still move with a downward bias as Delta variant worries are seen to remain,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.

He noted that, “The local transmission of the said strain, confirmed by the DOH, is seen to weigh on sentiment since it raises the risk of resurgence in COVID-19 cases which would be detrimental to both our public health and economy.”

“If more confirmed local cases with the Delta variant are reported next week, then we may see heavy sell offs in the market,” Tantiangco warned.

He added that, “The reversion of the National Capital Region to GCQ with heightened restrictions is also expected to weigh on the market. This is due to the economic losses anticipated from the imposition of relatively tighter measures against the productive capacity of the biggest contributor to our GDP.”

Online brokerage firm said “Innate inefficiencies in contact tracing implies that actual cases may be higher than reported (as is in the early days of coved-19 in 2020), amplifying the risk of operational interruptions in the third quarter of 2021, especially for cyclical businesses.”

Meanwhile, it noted that, “Regional risk assets may grate over the Fed's expected move in the coming week, having been wrestling with new inflation risk and relatively high unemployment over the past month.”

“While status quo on rates remains the most likely result in July minutes, markets may be pricing in a sooner-than-expected tapering depending on the gravity of the delta variant's impact on third quarter macro numbers,” said. 

It added that, “On top of seasonal impacts to agriculture of monsoon rains, third quarter expectations are so far tilted to the downside, at least on a quarter-on-quarter basis.”

Tantiangco said trading is seen to remain lethargic as many investors are seen to stay on the sidelines due to the lingering uncertainties in the market. Investors may also watch out for the second quarter corporate results for clues.

BDO Chief Market Strategist Jonathan Ravelas said “last week’s close at 6,520.74 highlights the bears are in control. This signals further tests towards the 6,300 levels in the near-term.”

He warned that, “A break below the said levels should put the 5,700 to 6,000 levels within striking distance.”

With the recent fall of the peso against the US dollar, Abacus Securities noted that some stocks are seen to benefit due to their dollar-denominated earnings from exports. 

“As exporters tend to be beneficiaries of peso depreciation, consumer companies with a significant portion of its overall revenue and income coming from its exports business are likely to feel a positive impact,” it noted.

Abacus said “We see this in both DNL and CNPF, whose export businesses contribute to 34 percent and 22 percent of their revenues, respectively. The benefit for DNL and CNPF may even be larger than anticipated as their respective export segments have both exceeded expectations in the first quarter of 2021 and will most likely sustain its performance for the rest of the year. This should bolster the two stocks.”

 “We reiterate our BUY on DNL with a TP of P9.00 and our HOLD recommendation for CNPF as it creeps toward expensive territory,” it added.

Abacus also cited some stocks which are attractive after the market’s fall such as AC Energy which was down as much as 10.7 percent even though its energy portfolio is unlikely to be affected. 

“IMI, ICT, PGOLD, and AP  are some of the issues that were caught up by the selling. We don’t know for sure how much lower the index can go but the names mentioned above would be candidates to pick up on further weakness,” it said.

COL Financial is recommending a BUY for GTCAP following the sustained recovery of Toyota Motors Philippines.

“At P574, it is trading at 10.1 times 2021 estimated earnings, significantly below its historical average of 15 times. Current discount to net asset value also remains near its historical high at 48 percent,” it added.

COL explained that, “While the negative sentiment could keep prices depressed in the short term, we believe that these challenges are transitory and that fundamentals remain attractive over the long term.”