The local stock market is expected to see a little more bargain-hunting at the start of this week although many issues may already be ripe for profit-taking given the lingering uncertainties in the domestic and global front.
“(Last) week's V-shaped recovery is reason permeating the market, but intraday movements remain tense in general and will likely remain that way until headwinds turn the corner. For the strong-handed, no sweeter time to hunt for bargains,” said 2TradeAsia.com.
However, Philstocks Financial Senior Supervisor for Research Japhet Tantiangco said that, “While room for bargain hunting is still seen as a lot of stocks are still at attractive levels, lingering economic concerns may weigh on sentiment and cause investors to book gains from last week’s rally.”
He noted that :In the US, worries over recession risks brought by the Federal Reserve’s hawkish policy outlook in light of their elevated inflation may cause negative spillovers that could weigh on the local bourse.”
While “the Fed ruled out any increases greater than 50 basis points; this week, some voting members are voicing that a 75-bps hike may be seen as early as the June 14-15 meeting,” 2TradeAsia.com observed.
“This seesaw in policy is what we have been harping in our notes the past few weeks, given the delicate balance need by an inflationary macro-environment in post-pandemic, job-sensitive markets,” it added.
Onshore, Tantiangco said that, “with the Bangko Sentral ng Pilipinas already starting their monetary tightening, concerns over how hawkish our monetary policies could get amid demand-side inflationary risks may also weigh on the market.”
“While local street consensus is that the BSP has more legroom than its US counterpart, owing to better CPI and a positive surprise in first quarter GDP, but energy prices and forex remain outside of comfortable levels, and the protraction is not helping the outlook heading into the second half of the year,” said 2TradeAsia.com.
Tantiangco added that, “Finally, investors are still expected to watch out for further details on the economic policies of the incoming administration.”
COL Financial said “Investors have a cautious view towards the new administration given uncertainties about the economic policies of Presumptive President Marcos.” It also noted that, “in the near term, the local stock market is not expected to do well due to several non-political factors.”
These include high inflation domestically and globally, the prolonged war in Ukraine leading to elevated commodity prices, a U.S. Fed that is aggressively raising rates to fight inflation, rising bond rates domestically and globally, and the poor performance of U.S. stocks.
“Given the numerous challenges facing the stock market in the near term, we recommend investors to stay light. Rallies are opportunities to sell, and accumulate slowly only when stocks are sold down to attractive valuations,” advised COL.
In terms of sectors, the brokerage said “the banking and power distribution sectors are our most preferred sectors because they are the most resilient to rising inflation, interest rates and regulatory risks.”
For stock picks, COL is upgrading its recommendation on GMA Network from HOLD to BUY following the recent selloff in the stock.
“We continue to like GMA7 given its strong financial position and efficient operations. Moreover, the company is in a prime position to capture ad placements for television and radio being the only dominant player in the free to air space,” it added.
COL also has a BUY rating for EEI Corporation because of its “favorable view on EEI’s long term prospects given its a) dominant position in the construction industry, b) advantage in winning new projects from the government, and c) the company’s healthy construction backlog.”
The brokerage also likes Eagle Cement after its first quarter 2022 results outperformed both COL and consensus estimates due to lower-than-expected tax expense.
COL said the lower tax rate resulted in increase in the firm’s net income forecast. It is also optimistic on the construction industry’s recovery and consequently the improvement in cement demand this year.
Abacus Securities Corporation said Eagle is in the best position to weather the challenging environment, but warned that interested investors should manage exposure as the stock remains relatively illiquid.