The local stock market is seen to be cautiously optimistic this week as it builds up strength above the 7,000 level for its fourth quarter run although inflationary factors may put at damper on sentiment.
“Next week, the local market could move sideways. The brightening economic prospects brought by the alert level downgrade in the National Capital Region is seen to keep the positive sentiment in the market,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.
He also cited the country’s improving COVID-19 situation and noted that, “If the cases further decline this week, then it may strengthen investors’ confidence since it raises the possibility of more easing of restrictions in the country.”
However, Tantiangco said “The elevated global oil prices serve as downside risk... If oil prices remain high, worse, if they rally further, then it is seen to raise inflation worries which could weigh on the local bourse.” Investors are also expected to watch out for upcoming third quarter corporate reports.
“Portfolio re-strategizing will be central to fourth quarter as the eventful 2022 nears, making the run-up towards 7,500 to 8,000 for local equities reasonably ambitious, at best,” said 2TradeAsia.com.
It noted that, “rich valuations will come into question, especially with medium-term earnings already hitting pre-COVID low-median.”
The brokerage added that, the COVID caseload of 10,000 daily “remains concerning heading into an active holiday season, and threatens reversion to tighter lockdowns, reminiscent of the first quarter 2021 spike.”
“In short, there are downside risks in the horizon that remain noteworthy so as to not be carried away by bullish overtones,”
The online brokerage said that, “while the case for higher valuations remains intact on organic earnings improvements in 2022 plus elections-sparked economic activity, it would be sensible in the near-term to err on the side of caution as the PSEi attempts to build (its first) base above 7,000.”
“In that case, check on names that have yet to ride the wave and provide better alpha for 2022,” 2TradeAsia.com said.
BDO Chief Market Strategist Jonathan Ravelas said “investors are becoming more optimistic on a combination of upbeat regional sentiment and prospects of further economic reopening as COVID-19 infections decline.”
“Last week’s close at 7,213.46 highlights the market is gaining momentum as it broke above the 7,150 resistance level. Should this condition persist, it might try the 7,400 levels in the near-term. Failure to sustain itself above the 7,150 levels could prompt some profit taking,” he projected.
With the further easing of quarantine measures, brokerage firms are recommending cement stocks which will benefit from increased construction activities with both Abacus Securities Corporation and COL Financial favoring Eagle Cement Corporation.
“We continue to prefer Eagle in the cement sector due to its margin leadership, capacity expansion, and as we believe the odds of securing a supply agreement for the Bulacan airport is high. Management also said they are looking at improving the stock’s liquidity,” said Abacus.
COL said “We think that the company’s SNMC (quarrying company) acquisition should help temper the expected decline in margins from rising fuel and power costs. Furthermore, we continue to like EAGLE because of its strong balance sheet position, excess capacity, and superior margins compared to its peers.”
Banking stocks are also seen to benefit from the economic recovery with COL Financial recommending a BUY for Metrobank because of its lower exposure to riskier segments, with consumer accounting for 21 percent of total loans; its high non-performing loan coverage ratio at 179 percent; and better access to liquidity given its large CASA deposit.
For its part, Abacus is more partial towards BDO Unibank and upgraded its target to P162 per share because, “with the largest market share, BDO is likely to benefit the most from economic reopening.”
It noted though that, “Bear in mind however, that full reopening is still expected to be a considerable time from now, even with current market optimism, and that our outlook for these stocks and the sector as a whole is long-term.”
Abacus also upgraded its target for AllHome to P13.00 per share but said “we wouldn’t be surprised of the stock overshoots” because the company beats its bigger rival on a lot of metrics.
It said AllHome remains the cheapest home improvement stock in the region, its growth from pre-COVID levels are better than its rival, efficiency is improving, and its online sales are growing faster.