The local stock market is seen to remain weak this short trading week as concern over rising inflation and monetary tightening by the US Federal Reserve weigh on investor sentiment.
“This week, the local market could move with a downward bias as it continues to face headwinds from both offshore and onshore,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.
He noted that, “The Federal Reserve’s hawkish monetary policy outlook is seen to remain as a big concern for the local bourse since a tightening of the Fed could lead to more foreign fund outflows from the Philippines, and a weakening of the peso.”
“The Fed’s most recent minutes communicated brisker rate hikes moving forward, on top of an already installed balance sheet wind down,” said 2TradeAsia.com.
It recalled that much of expectations for March was a 50b ps rate hike, but the Fed settled for 25bp noted 2TradeAsia.com adding that, “given still-elevated inflation outlook and strains on global oil supply chains, we believe that the market is still eyeing a 50bps cut in May.”
“This means little to no surprise is in the cards especially if next week's US inflation report does not downtrend,” it explained but added that, “as the delicate concern of rate hikes is likely to prevail for most of 2022, brace for aversion against rate-sensitive highly leveraged assets.”
“The continuous escalation of the Russia - Ukraine war and its implications on the global economy may also dampen sentiment,” Tantiangco said.
At the domestic front, he said “our rising inflation is currently seen as the main concern that could weigh on the market. This is as our rising inflation is expected to pose challenges on our economic recovery.”
Rising inflation is also seen to raise worries over a possibly of earlier monetary tightening by the Bangko Sentral ng Pilipinas.
Tantiangco said investors may also watch out for the upcoming release of foreign direct investments data.
2TradeAsia.com is also concerned over the lockdown being imposed in China due to a surge in Covid-19 cases.
“The anxiety here is China being the leading indicator for most caseload spikes in the past two years, outside of variants that originated elsewhere,” it noted.
It added that, “At home, any lockdown close to midyear is particularly concerning. For one, nearly 20,000 schools are expected to reopen over the next few months; enrollment generates significant economic traffic, influences remittance flows, and indirectly shifts the labor demand curve to the right.”
As the tug-of-war between bulls and bears continue 2TradeAsia.com advises investors to be selective and seek out those with high alpha potential (low price but aggressive capex) and those with some degree of natural immunity to—or better, beneficiaries of—rising inflation and interest rate spikes.
COL Financial has a BUY rating on Philippine National Bank which it views as a deep value play as the bank is only trading at 0.2 times its estimated book value for 2022, significantly below the industry average of 0.9 times.
“We expect PNB’s asset quality, which was severely impacted by the COVID-19 pandemic, to slowly improve as the economy gradually recovers amid the easing of restrictions in Metro Manila as well as increasing inoculation rate in the country,” it added.
COL also reiterated its BUY rating on AllHome because the stock is trading at only 15.7 times 2022 earnings and potential capital appreciation is attractive at 47.3 percent.
“We continue to like HOME because of its sustainable store network expansion plan and initiatives for continued margin expansion,” the brokerage said.
Abacus Securities Corporation likes liquor firm Keepers Holdings because its earnings are gaining momentum and is better compared to its peers.
It also said Keepers’ net income may have reached or even exceeded P1.8 billion last year and would be well ahead of pre-Covid levels. Also, as the economy reopens up further, KEEPR will benefit as on-premise consumption accounted for a significant share of revenues prior to the pandemic.
Abacus is also recommending MacroAsia Corporation as it “is definitely on the recovery track and it should be consistently profitable by the third or fourth quarter of this year. Moreover, we now expect Macroasia to return to pre-pandemic profit levels by next year.”
“We therefore believe that the stock can rally 40 percent or more from current levels until yearend and gain further through 2023. MAC has always been our preferred transport play because it has little competition (which is in stark contrast to airlines) and is less affected by costly jet fuel prices,” it added.