Stock investors to take cues from Fed meeting

Published December 11, 2022, 12:10 AM

by James A. Loyola

The local stock market will be taking cues this week from the result of the last meeting of the US Federal Reserve to see if it will start tempering its previously aggressive rate hikes.

“Last week, the local bourse staged a 1.39 percent rebound. However, an extension of its ascent is still expected to be challenged by lingering economic concerns,” said Philstocks Financial Research Manager Japhet Tantiangco.

He noted that, “Upside risks to inflation are still seen stemming from food and electricity prices. On a positive note, downside risks to inflation are seen stemming from the strengthening Peso and declining global oil prices.”

“Aside from inflation concerns, offshore recession worries amid the Federal Reserve’s monetary tightening may weigh on sentiment,” Tantiangco said.

For its part, said “Capital markets are expected to gyrate with the Fed’s final meeting for the year as was the case for all Fed meetings throughout the year.”

“Baseline expectations is for the Fed to hike by a slightly less aggressive 50 basis points, to end its four consecutive 75-bps increases… Movement in US treasury yields plus stability in gold so far imply mixed emotions as to the overall picture of interest rates in 2023,” the brokerage said.

It noted that, “the Fed’s slight dovishness relative to 2022 does not signal the end of tightening, only that there is a more complex balancing act needed to avoid a collapse in demand.”

“Next week, investors are also expected to watch out for the Bangko Sentral ng Pilipinas’ policy decision with a 25 to 50 basis points policy rate hike anticipated,” said Tantiangco.

He noted that, “Investors are expected to watch out for clues regarding the outlook of the country’s inflation on the BSP’s upcoming policy meeting. Aside from this, investors may also take cues from our upcoming foreign direct investments and foreign trade data next week.”

“There should be some pockets of value that are expected to remain steady (if not flourish), particularly in sectors we have monitored in recent quarters, such as banking and commercial RE, and some alpha plays in gaming and industrials. With the PSEi trading at 13 times earnings, there might be some merit to accumulating gradually—with asset quality at the forefront of screening,” said

For its stock picks, Abacus Securities Corporation is favoring Robinsons Retail Holdings Inc. as its earnings continue to recover and even surpass pre-pandemic levels.

“It is looking like the momentum in the third quarter will carry on to the fourth quarter with foot traffic on full blast with management in its third quarter 2022 earnings call mentioning double digit same store sales growth for October and November,” it noted

Philstocks also recommends trading RRHI because “Its chart is showing bullish signals… We recommend entering the stock once it breaks out and sustains position above its immediate resistance (P60.25)”

Among food producers, Abacus recommends a BUY for D&L Industries and said it is its top pick for the sector because “Unlike the others, its revenue growth has far outpaced that of its inventories. This translates to more efficient working capital levels, lower financing costs and higher free cash flows.”

“Another thing that sets DNL apart from its peers is that it is a net exporter… Now the peso has strengthened recently but it is still likely to fall over time,” said Abacus noting that once D&L’s new plant ramps up, “DNL’s growth should accelerate.”

Abacus said its second pick in the sector is Century Pacific Foods Inc. because “Management said in the last briefing that fourth quarter profitability was better compared to the third quarter and we like its small but fast growing pet food line.”