Inflation, interest rates to hound stock market this week

The local stock market will be taking cues this week from the announcement of the August inflation rate while investors remain wary of rising costs, weaker peso, and interest rate hikes.

“The aggressively hawkish policy outlook of the Federal Reserve is still expected to weigh on the local market next week, especially if the rise in US interest rates and the decline in Philippine Peso continues,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.

He added that, “At the same time, the local market is expected to take cues from the upcoming economic data next week, primarily from our August inflation data.” “A slowdown in our inflation is expected to boost sentiment while a further increase is seen to add weight to the market,” Tantiangco explained.

While the past quarter has seen inflation stay within a fairly stable, albeit elevated, range; continues to warn of “more pressure on the retail-end of the value chain as shelf prices have yet to fully caught up on higher input costs.”

“This view is retained and further supported by a weak peso (all-time low since 2004), inclement weather since early August (further strain agricultural commodities), and more recently, Chengdu’s lockdown, which may mirror some of Shanghai’s earlier shutdown and risk upending the supply chain once more (Chengdu is a megacity manufacturing hub of 21 million residents),” it added.

It noted that, “The short is that data has yet to convince markets that inflation is peaking any time soon, and valuations should reflect this.” Meanwhile, Tantiangco said “Investors are also expected to watch out for the Philippines’ July labor market figures for clues on the strength of the local economy.”

“Downside risks-new CPI spikes, Fed rate hikes-for the remainder of the third quarter and spillover to the fourth should drive market excitement back to earth. The silver lining is that these risks are in no way new and unique… Range trade while the broader market remains in search of a soft landing,” advised

For stock picks, Abacus Securities Corporation is looking at firms whose business will benefit from seasonal factors during the last four months of the year or “BER” months.

It noted that consumer and retail stocks will benefit from the coming holiday spending, particularly SM Investments Corporation and Robinsons Retail Holdings Inc.

The Keepers Holdings is also seen to get a boost in earnings from the recovery in consumption of its on-premise alcoholic products while D&L Industries is expected to outperform during these months as in the past years.

For conglomerates, Abacus prefers GT Capital and SM since their first half core earnings are already at, or exceeded, pre-pandemic levels.

For banks, its top picks are BDO and Metrobank although it is also positive on Security Bank due to its low valuation and improving outlook.

Meanwhile, Abacus also advises clients to be overweight on Metrobank especially with its recent cash dividend declaration which boosted its 12-month yield to 5.67 percent.

“This is the second highest among the nine universal banks we follow and well above that of its two biggest peers,” it said also noting the bank’s high non-performing loan coverage which protects it from a potential surge in bad loans.

COL Financial has upgraded its forecasts for Jollibee following the stronger-than-expected second quarter results and upgraded the stock rating to a BUY.

“We increased our 2022 system-wide sales (SWS) by 12 percent and revenue forecasts by 10 percent as we expect the momentum in the second quarter of 2022 to extend to the second half… Similarly, our net income forecasts grew 22.5 percent to P9.2 billion,” it said.

COL noted that, “Second half sales should further benefit from the resumption of face-to-face classes in public and private schools, as well as the usual holiday boost. Furthermore, we believe that the China segment will continue recovering as the country’s restrictions ease.

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