While some bargain hunting may be seen this week at the stock market, sentiment will continue to be weighed down by slower economic growth, inflationary pressures, and the start of the Chinese ghost festival.
“With our second quarter Real Gross Domestic Product growth coming in below expectations, cracks in the confidence towards the economy could already be present which in turn would make the building of market momentum even harder,” said Philstocks Financial Research Manager Japhet Tantiangco.
He noted that, “with the local market already declining for three straight weeks, we may see bargain hunting in this trading next week. However, with the tempered confidence towards the economy following the recent GDP data release, a strong rally would be challenging.”
“Adding to the concerns is the mounting food inflationary risks primarily the impact of El Nino,” Tantiangco said.
He also pointed out that, “this week, investors are also expected to look forward to the Bangko Sentral ng Pilipinas’ policy meeting to see how their reaction and policy outlook would be following the slowdown in our GDP growth in the second quarter. Hints of dovish policies from the BSP may give sentiment a boost.”
“Disappointing second quarter GDP gave bears more reason to sell this market,” said 2Tradeasia.com adding that more pain may be seen ahead in light of lower government expenditure and the impact of the prevailing El Niño phenomenon, consecutive typhoons, and low visibility on rates in the medium-term.
On the other hand, while corporate earnings were sustained in general, the brokerage noted that, “short-term market sentiment remains unimpressed; there are some signs of deceleration in growth, particularly in volume-based indicators that in a way reflect slower economic growth.”
2Tradeasia.com also pointed out that, “the Chinese ghost festival will start on the 16th, which could further thin out trading volume for the next few weeks. Expect the market to hyper-fixate on the BSP's meeting next week (on the 17th) as funds look for stronger direction amid the divergence between economic deceleration versus neutral-to-positive corporate earnings and valuations.”
For stock picks, COL Financial has a BUY rating for DMCI after noting that its second quarter performance was generally in line with forecasts except for its construction business while DMCI Homes exceeded forecast.
It noted that, “DMCI is trading at a price to earnings ratio of 4.2 times, way below its historical PE of 11.2 times. Based on its projected 2023 cash dividend of P0.80 per share, this provides a very high dividend yield of 8.4 percent. Upside to our fair value estimate is also very high at 59.4 percent.”
It also has a BUY rating on SM Investments given their robust earnings growth despite global headwinds as there is strong momentum in consumer spending which will benefit SM Retail and the malls of SM Prime.
For its part, Abacus Securities Corporation said, “we believe SM will handily beat consensus estimates this year… FY 2023 earnings should range from P74.0 billion to P77.3 billion, both of which would be ahead of the current P72.8 billion consensus. This means the stock is cheaper than is currently indicated on Bloomberg even as SM is already trading two standard deviations below its 10-year mean.”
Meanwhile, COL said, “we continue to like D&L Industries as it remains in a prime position to capitalize on the reopening of the economy. We also expect that the recovery in overall business activity should result in a more favorable sales mix for D&L and drive margin expansion over the long-term.”
“We believe the company’s long-term growth prospects remain attractive and expect that the significant capacity expansion from its new Batangas facility will allow DNL to scale its export business,” it added.
Abacus also said, “we are maintaining our buy call as we believe the company’s expansion plan will be beneficial in the long run.”