Stock market still shrouded in uncertainties

Published May 15, 2022, 7:00 PM

by James A. Loyola

This week, the stock market may see some bargain hunting after suffering a steep fall in the last five trading days although uncertainties remain as investors wait for the new administration to name its economic managers and lay out its plans.

“With its fall last week, the market has so far been moving in line with the prediction of its Death Cross which appeared last May 6, 2022,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.


He noted that, “With already five straight days of decline, we may see bargain hunting in next week’s trading. A strong rally is not expected yet, as the market continues to contend with numerous headwinds.”

Tantiangco explained that, “Worries over inflation may continue to weigh on sentiment especially with the approval of the minimum wage increase in the National Capital Region and Western Visayas.”

The rising inflation and the strong first quarter gross domestic product data strengthens the case for the Bangko Sentral ng Pilipinas to hike its policy rates which, in turn, would raise the borrowing costs of companies.

“Thus, investors are expected to watch out for the BSP’s policy meeting next week. Offshore, inflation and interest rate worries may continue to weigh on Wall Street which in turn could produce negative spillovers for the local bourse,” Tantiangco said.

Online brokerage said “The local Monetary Board will convene on the 19th, with market expecting a parallel hawkish move from the Fed (as regional central banks have adjusted in the past week).”

Tantiangco added that, “Investors are also expected to watch out for more clues on the economic policies, including the economic team of (the next President). Policies that would: help sustain economic recovery; control the rise in prices; keep our COVID-19 situation under control; strengthen the labor market; and address our elevated debt levels may give sentiment a boost.”

“Anxiety may be stemming from policy uncertainties, heading into a fragile global economy that is very much different from the baton pass the market saw in 2016,” said

It added that, “The silver lining is that the speculate new cabinet, particularly those responsible for economic policy, are technocrats the market is familiar with, and should balm the outlook in the short-term.”

“Next discussion should move towards whether the floated ‘fiscal consolidation’ will truly materialize and involve tax hikes, which are likely to move proformas significantly by mid-year,” noted.

It said “Eyes will also be on four large caps reporting corporate earnings next week (representing 6 percent of the PSE basket). Valuations have come down to as much as 14 times forward price-to-earnings ratio, but jitters at the macro-level are prompting re-assessments at the corporate level, particularly those that can maintain capex and dividend payouts amid turbidity in the overall business environment.”

“Multiple Fed cycles, political upheavals, and earnings revisions come and go, but equities with real value only tend to go up with time. Hunt for these while the broader market finds stabler, less emotional ground,” advised.

For its stock recommendations, Abacus Securities likes SM Investments Corporation because, “With current alert levels reduced and the economy further reopening as the country moves beyond the pandemic, SM is poised to have a strong year with the recovery of its Property and Retail segments.”

COL Financial is also upbeat about SM saying “We are upgrading our recommendation on SM from HOLD to BUY as the recent retreat in SM’s share price has increased the upside to our fair value estimate of P953 to 15 percent.”

“More importantly, we are positive about the recovery in malls and retail as the worst of the pandemic is likely behind us. Meanwhile, banks are likely to benefit from higher loan growth as economic activity improves and higher margins due to the rising interest rate environment,” it added.

Abacus also prefers Robinsons Land Corporation among property developers because it is still trading at a discount to its historical mean, which implies limited downside potential.

“As mobility continues to improve and as restrictions are further loosened, we expect malls to register subsequent improvement which should redound to the benefit of RLC,” it added.

COL said it is also maintaining its BUY rating on RLC “as it will also be a major beneficiary of the ongoing recovery.”

“Greater mobility arising from lower alert level will not only benefit RLC’s mall business and hotels, but the residential business as well, as this would translate to improved consumer sentiment and investor confidence. Meanwhile, its growing office portfolio gives it a steady source of recurring income to minimize earnings volatility,” it explained.

COL also has a BUY rating on DMC Holdings as it provides a very high dividend yield and a high upside to their fair value estimate.

It noted that, DMC’s first quarter 2022 net income is ahead of forecast on the back of higher than expected earnings from its coal, housing, construction and nickel mining businesses.