PH bourse to take cues from US economic front

Investors in the local stock market will be looking towards the US for cues as key economic data releases and the US Federal Reserve policy meeting will be front and center this week. 

“The highly anticipated Fed meeting on June 11 to  12, plus inflation reports for May should drive activity in capital markets,” said online brokerage

It noted that “flattish annual headline inflation with some easing in sequential month-on-month figures are keeping pessimists in the sidelines, especially if labor data over the weekend will support some slowdown in the economy.”

“Inflection in macro data is key here; while monetary policy is generally expected to remain anti-growth in the short term, the ECB lowering rates for the first time since 2019 may be a prelude of what is to come, advent improved inflation outlook. Revisiting Expectations,” the brokerage said. 

The local inflation remains stubborn and a status quo stance is expected from the Bangko Sentral ng Pilipinas (BSP) on its June 27 monetary board meeting, said, “funds were quick to pick up bargains after the recent sharp decline, as fresh (mostly positive) macro data is now more carefully being balanced against expectations grounded in reality.”

Thus, it advises investors to “range trade while local central banks mull over what could be the denouement in the current interest rate cycle.”

For stock picks, Abacus Securities Corporation is recommending BDO Unibank and its parent company SM Investments Corporation.

“As a result of the last MSCI rebalancing, BDO's forward price-to-earnings (P/E) ratio fell to 8.15 times. This is 22 percent cheaper than BPI and cheapest the bank has ever been based on the metric since it listed just over 22 years ago according to Bloomberg data," it said. 

“The stock can, of course, get cheaper especially with weak market sentiment being as weak as it is. However, we believe the downside is relatively modest compared to the upside as BDO has a historical compounded annual return (including dividends) of 12.2 percent since it listed in 2002. Clients with long term horizons should consider accumulating at current levels,” it also advised.

Meanwhile, based on the changes in the forward P/E ratios for 12 of the bluest blue chips in the PSE as well as that of the PSE Index for the past five years to May 2019, Abacus said SMIC has de-rated by 52 percent, or from 25.9 times to 12.3 times. 

It noted that this is the second steepest drop among top tier stocks. “We also see that the PSEi has de-rated by only 34 percent which means investors are getting a better bargain with SM," it said.

“In summary, now is as good a time as any to own or buy the stock. We are more than comfortable at the current price but more conservative clients can wait at identified supports particularly at around P800,” Abacus said.

Meanwhile, Abacus is also recommending Union Bank even though its share price has spiked recently.

“After being ignored for more than a year, there has to be something other than fundamentals behind the sudden activity. We doubt the bank is doing another acquisition or is, itself, being acquired," it said. 

“If we had to speculate, the only other possibility is the potential reentry of UBP to the index. The easiest way would be if SSS doesn't nominate anyone to the bank's board which would allow the fund's shares to be counted as free float. But Union's annual general meeting was in April so this is unlikely as well," it added. 

“In any case our target price is P54.00 so there is significant upside and so we remain a Buy on UBP,” the brokerage said.