While the local stock market is seen to be buoyed by prospects of a big drop in pump prices this week, sentiment may continue to be dampened by the weak peso.
“The local market rode on positive momentum last week but the sustainability of this rally is questionable amid the lingering economic headwinds that may dampen sentiment,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.
He noted that “This includes the peso’s further weakening, and the supply problems of certain agricultural goods, both of which pose upside risks to inflation.”
“Next week, investors may also watch out for the upcoming US June inflation report as this would provide clues on how aggressive the Federal Reserve will act in their next policy meeting,” Tantiangco said.
He added that, “investors may also take cues from our upcoming foreign trade, foreign direct investments, and Overseas Filipinos’ remittance data.”
Brokerage firm 2TradeAsia.com warned that, “Inflation printing at 6.1 percent is practically just stronger confirmation of another round of hikes this month (at least 50bps) lest the BSP risk being more behind the curve.”
It noted that, “transport CPI is facing more upward pressure from higher minimum fares in July, as well as a higher import bill due to forex disadvantages.”
“On the latter, note that food-to-total imports of the country is at 13 percent last year, one of the highest in the region,” 2TradeAsia.com pointed out.
Meanwhile, it said that, “Feelers for first half 2022 results are gradually materializing. The expected prevalent theme will be margin compression, particularly for those who import raw materials (as the forex plus freight impacts are twice-charqed) and those whose revenue models are dependent on local consumer confidence.”
The flipside is that exporters, OFW/BPO driven sectors, and inbound tourism, among others, are safe (if not thrive) in these same conditions.
“Overall, participants should brace for forex devaluation and capital formation to take a backseat to disinflation efforts. This postpones most growth stories to no earlier than 2023, making underrated but resilient bargain plays more rewarding in the long-term,” 2TradeAsia.com said.
For stock picks, Abacus Securities Corporation is favoring Universal Robina Corporation as palm oil prices keep falling. Wheat has also come off its own high by a substantial margin.
"We favor URC because it may also benefit from a domestic sugar shortage,” it noted.
Meanwhile, the brokerage also likes Petron, DMCI and Semirara. Petron’s second quarter earnings are likely to be even better compared to the first quarter as “robust refining margins will probably be sustained as long as the war in Ukraine drags on.”
“This is the same reason that coal prices will be strong for the foreseeable future. And, although SCC and DMC have already rallied so much during the pandemic, such gains are not commensurate to the growth in their respective (earnings per share,” it added.
It also reiterated that Semirara will likely rejoin the index next month. Meanwhile, DMC has a good chance to do the same if either EMP or SMC fail to increase their free float levels to at least 20 percent by the end of this year.
COL Financial has the same view. It has “High Conviction” that Semirara will be included in the PSEi index after placing 25th in the ranking based on full market capitalization. SCC also fits all the other inclusion criteria.
It has “Low Conviction” the DMCI will also join the PSEi noting that, while there are talks that it will be added, “DMC failed to reach the top 25 in terms of full market cap rank, which means that it won’t be included as well.”
COL also has a BUY rating for Robinsons Retail due to the lower-than-expected tax rate booked in the last quarter and lower opex assumptions for 2022 and 2023 considering the slower-than-anticipated growth in opex.
“After factoring in our adjustments, our net income forecasts for 2022 and 2023 increased by 9 percent and 7.3 percent, respectively,” it noted.
“We reiterate our BUY rating on RRHI given its well-diversified portfolio of retail formats and positive long-term growth prospects. The growing scale of its e-commerce platform also makes RRHI well-positioned to capitalize on future growth opportunities amid increasing digitization,” said COL.