The local stock market may see some bargain-hunting this week due to the steep plunge seen last week but investor sentiment may continue to be dampened by expectations that inflation and interest rates will rise further while the peso will continue to lose value.
“The local market has already been declining for six consecutive weeks with total losses at 16.36 percent. As of end-September 2022, the market is trading at a Price to Earnings Ratio of 15.08 times, below its last 5-year average of 20.58 times,” noted Philstocks Research Manager Japhet Tantiangco.
He added that, “Given these, we may see bargain hunting next week. However, we may not see a strong rally yet as the market continues to contend with economic concerns. This includes the increase of our national debt, rising yields both at home and in the US, the Peso’s weakness, and recession worries abroad.”
“Investors are also expected to deal with our September 2022 inflation data which may come in faster than the preceding month’s 6.3 percent. Aside from this, investors are also expected to watch out for the Philippines’ S&P Global Manufacturing PMI and labor force data for clues on the local economy,” said Tantiangco.
Online brokerage firm 2TradeAsia.com said “The direction is clear; the BSP's own September inflation expectations range of 6.6 percent to 7.4 percent is interesting in that even if inflation hits the floor (6.6 percent), it will still be the highest monthly print for the year.”
“What this also implies is another 50bps (or likely, stronger) move on November and, or, December. Note that we called the peso reaching P60 to a dollar last July; there is a bias for more devaluation down the line as the dollar continues to soar given the UK's recent emergency quantitative easing,” it added.
The brokerage noted that, “The PSEi trading at the 5,700 level is extremely reminiscent of the Covid-19 lockdown era (May to Oct. 2020). At this level, forward price to earnings ration is in the 12 to 13 times range.”
“The broader market may continue to be weighed here depending on where inflation shakes out over the next quarter, but on an asset basis, there may be movements worth pursuing, especially once third quarter results are out and the picture for 2023 capex becomes more visible.”
Thus, 2TradeAsia.com advises that “While no sector is completely immune to higher cost of debt or squeezed out purchasing power, there are merits to sticking to reliable plays with little exposure to floating debt, forex volatility, and can take advantage of historically more volume-based consumer demand in the fourth quarter.”
For stock picks, COL Financial is rating Ayala Corporation a BUY after raising its net income forecast for AC on the back of the higher expected profit of its telecommunications unit.
“For AC, our net income forecast for 2023 is raised by 14 percent to P35.3 billion... AC fair value raised to P857,” said COL noting that, there is a “significant upside potential from the current market price of (P616.00).”
It added that, the market net asset value of AC is about 20 percent higher than the current market price of AC.
Meanwhile, Abacus Securities Corporation noted that the bear market has opened up rare buying opportunities for long-term investors and recommends ICTSI and SM Invesments “which are trading at around two or more standard deviations from their long term forward price-to-earnings means”
It said SM is currently trading at its smallest premium to the PSE index in at least 10 years and is cheaper today than it was during the market’s Covid low (16.3 times on March 19, 2020).
“All these seems underserved given that SM is already performing ahead of pre-pandemic levels,” Abacus said.
In the case of ICTSI, Abacus said “the company showed the ability to navigate through the economic weakness during the pandemic. We are a Buy but there may be opportunities to pick up at lower levels.”
The brokerage also favors Security Bank and Puregold. It noted that Security Bank is one of the few large stocks that are trading even cheaper today compared to its March 2020 low while Puregold has sunk to a record low and its price-to-earnings ratio is lower than 30 months ago.