Despite the PSEi’s recent run-up, stock analysts see the market starting weaker this week as investors fret over the possible impact of rising interest rates and other issues overseas.
“Next week may start on a negative note as we may see profit taking from the market’s preceding 3-day rally,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.
He noted that, “For the whole week, investors may take a cautious stance as they continue to deal with lingering global economic concerns while waiting for cues.”
“Worries over global economic risks including the Federal Reserve’s hawkish policy direction and its impact on the US economy, China’s COVID-19 weakened economy, and the Russia – Ukraine war, may continue to weigh on sentiment,” Tantiangco explained.
“After last week’s V-shaped recovery, some consolidation is expected given material shifts in the politico-economic space, as well as midyear adjustments in capex and growth targets,” said 2TradeAsia.com.
It warned investors to “Brace for selling pressure ahead of the Fed’s June meeting, as fund managers globally recalibrate their holdings.” “Another round of volatility in the coming sessions are expected after the BSP governor hinted for a sequel rate hike in the upcoming June meeting,” 2TradeAsia.com said.
It noted that, “Despite lack of severe market reaction from the first 25bps rate hike last week, some risk off attitude is warranted, as the Fed continues to telegraph 50bps hikes in both June and July. The combined rate hike is one of the fastest in the past decade and should douse inflation fears, but will tighten valuations and crimp capex plans for the second half 2022 to 2023.”
Tantiangco added that, “Investors may watch out for our weekly COVID-19 numbers to see if the rise in cases was sustained. If so, then it may add to the downside pressures in the market.”
“Investors are also expected to watch out for more economic plans from the incoming administration. Finally, investors are expected to watch out for the country’s April bank lending data and May S&P Global Manufacturing PMI for further clues on the economy’s condition,” he said.
Given the outgoing administration’s recommendations for fiscal consolidation, COL Financial sees some sectors of the stock market that may be adversely affected.
“Luxury goods retailers (SSI) will be negatively affected given plans to increase excise taxes on luxury goods,” while “cigarette (LTG), alcoholic drinks (EMP), and food manufacturers (URC, PIP) would also be negatively affected given plans to reform health taxes,” it noted.
Mining companies with mines outside mineral reservations will also be negatively affected given plans to impose royalties.
“Casinos (BLOOM) will be negatively affected given plans to impose a mandatory casino admission charge of P3,500 and a 5 percent tax on gross gaming revenues (gross bets less payouts) of electronic betting activities,” said COL.
Meanwhile REITs could also be negatively affected as the Passive Income and Financial Intermediary Taxation act (PIFITA) will make withholding taxes on cash dividend and interest income uniform at 15 percent, eliminating the tax arbitrage between REITs and bonds.
In light of rising interest rates, COL said this will generally benefit banks as this supports their net interest margin (NIM) expansion.
“We maintain our BUY rating on China Bank… We expect its lending business and fee-based revenues to pick up as economic growth rebounds this year,” COL said.
For its part, Regina Capital Development Corporation is recommending Security Bank because “The recovery in SECB’s profitability is likely to be sustained for the balance of the year.
It said earnings will be “positively influenced by the assumption that additional rate hikes from the BSP would drive its margins wider, lending activity to continue gaining traction, and mostly on the thought that the economic recovery is not going to get derailed.”
Abacus Securities Corporation reiterated its BUY rating for Macroasia because “we foresee that MAC can return to pre-pandemic profitability by next year or about the same as its peers. The potential for a major rally is there and we believe investors will eventually see this.”