Rates, peso concerns to cap stock bargain hunting

The local stock market may bounce a bit this week on continued bargain hunting but continuing concerns about rising interest rates and the weakening peso is seen to put a cap on any gain in share prices.

“With five straight weeks of decline, the last one posting 4.42 percent worth of losses, we may see bargain hunting this coming trading week,” said Philstocks Financial Research Manager Japhet Tantiangco.


He noted though that, “We do not expect a significant rally from the market yet as it is seen to continue dealing with expectations of further policy rate hikes by the Federal Reserve and the Bangko Sentral ng Pilipinas.”

“The Philippine Peso, which has now gone below the 58.00 per US Dollar level is also expected to continue weighing on sentiment. Trading may remain tepid as the market continues to move without a positive catalyst,” Tantiangco added.

Online stock broker 2TradeAsia.com said the Fed is likely to raise rates by another 75 bps in November and regional central banks must follow suit “with a synchronicity that has not been seen in decades.”

While this raises risks such as a sharp global downturn in 2023, its noted that, “the upside is that with this degree of posturing from central banks, inflation expectations should be more forgiving heading into 2023, which in turn should alleviate consumption-driven fundamentals.”

“Inflation for September and October will feed the next round of Fed hikes in November. Until then, markets may feel pressed for space and trades remain range bound,” 2TradeAsia.com said.

It added that, “On the other hand, earnings for third quarter should trickle in by around this time, which limits the downside particularly for defensive sectors.”

“For now, a defensive portfolio with strong balance sheets should be able to weather the brunt of weak currency, higher cost of debt, and generally volatile inputs market. Stay on the lookout for bargains; moments of extreme pessimism typically provide the best returns to those who are patient,” 2TradeAsia.com advised.

Abacus Securities Corporation noted that, “Equities certainly don’t look like a bargain right now. For the moment, our advice is to stick to quality names and to buy only on large dips.”

The brokerage firm is optimistic about the prospects of banks in light of rising interest rates which are seen to boost net interest margins (NIMs).

“However, we now foresee that this will be partially diluted by weaker loan demand... We therefore expect commercial bank loan expansion to decelerate from the most recent 12 percent to the mid to high single digits by the middle of next year. On balance, increased NIMs should outweigh a slowdown in loan growth,” it added.

Among its stock picks, Abacus is rating The Keepers Holdings as “its investment in Williams & Humbert should boost its bottomline by P400 million per year, which will be about 20 percent of 2022 earnings. The stock is already trading at a significant discount to its peers.”

For its part, COL Financial is recommending a BUY for D&L Industries after upgrading estimates on the firm’s higher-than-expected earnings and upcoming plant expansion.

“We are upgrading our forecasts to account for the outperformance relative to our estimates in first half of 2022. We raised our revenue estimate for 2022 by 4.5 percent while increasing our cost assumptions slightly,” it noted.

COL added that, “With the significant capacity expansion for the new plant, we expect the ramp up in production to boost earnings growth in the medium term. For FY23, FY24, and FY25, we raised our revenue estimates by 6 percent, 9 percent, and 13 percent, respectively.”

“While the upgrades seem small, note that we had already raised our medium-term forecasts in October 2021 to account for the upcoming plant expansion. With the latest revisions, our revenue forecast for 2022-2025 now translates to 3-year CAGR of 12.6 percent (despite the high base for 2022), faster than its historical 6.8 percent CAGR from 2016-2021,” it said.