PSE to see some bargain-hunting amid inflation, rate concerns

While sentiment continues to be weighed down by rising inflation, there may be some bargain hunting as investors wait to see how the Bangko Sentral ng Pilipinas (BSP) will react to the US Federal Reserve’s rate hike.

“With already two consecutive weeks of decline, we may see some episodes of bargain hunting in the local market next week,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.

However, he said “general sentiment is expected to remain bearish as lingering concerns are seen to continue clouding the market while catalysts that could provide relief are yet to be found.”

“Lingering concerns include: recession risks in the US amid the Federal Reserve’s aggressive monetary tightening; weak peso to US dollar exchange rate; and mounting upside risks to the Philippines’ inflation,” Tantiangco added.

This week, investors are also expected to look towards the BSP’s monetary policy decision and inflation expectations for clues.

“The market is bracing for the BSP’s Monetary Board meeting (this) week, on the heels of the Fed’s 75-bps rate increase earlier,” said

It added that, “outside of inflation expectations (which at this point are still looking to be protracted in the quarter) it will be interesting how the local central bank will communicate future policy.”

“This is as the Fed’s stance has fully digressed from inflation being transitory and instead committed to another 50 to 75 bps hike in July—the most hawkish it has been in decades,” noted.

The brokerage said that, “as there is no true perfectly inelastic good in the real world, entrenched inflation plus wage erosion is expected to broadly hit cyclicals the most.” Thus, it advises investors to switch from discretionary plays to staples, and hedge by increasing exposure to sectors with higher real assets in the balance sheet (real estate, renewable energy, telco).

“Given this, there may be a case to exploit bruised cyclicals, especially those with the brand equity to pass-on the costs or those whose are scalable and can afford lower margins in the next 6 to 12 months,” said.

It pointed out though that the PSEi’s price to earnings ratio is already a little under 14 times so “some significant bargain plays are on the table until macro headwinds come back to earth. Accumulate on dips. Immediate support is 6,200, resistance is 6500.”

“Chartwise, in touching 6,273.73 this week, the local market has formed a lower low. This implies that the market is still on a downtrend. Its support is seen at the 6,100 – 6,150 range while its resistance is at the 6,350 – 6,400 range,” said Tantiangco.

Meanwhile, Abacus Securities Corporation said the “jump in chicken prices is likely to be positive for large producers like Vitarich and San Miguel Food and Beverages which have the economies of scale to offset higher production costs.”

It also noted that, “recent market weakness and negative factors affecting the automotive industry pulled down GTCAP’s share price, but we believe this is an opportunity to pick up an under-the-radar and underrated stock.”

Philstocks also likes GT Capital as it is also one of the under-valued stocks using price-to-earnings (P/E) and price-to-book (P/B) ratios.

Abacus also noted that, “any further weakness will be a good opportunity to add to or initiate positions in ICTSI, as expanding margins due to higher yields per TEU and its geographic diversification will allow it to outperform most other companies on the PSE.”

Philstocks is also recommending SM Investments Corporation because “we believe that SM will recover further from the pandemic along with our local economy as we reopen from the lockdown measures.”

“Its property arm and major revenue contributor, SM Prime Holdings, Inc., is anticipated to have a strong performance this year compared to last year amid consumers’ revenge shopping, especially with minimal restrictions,” it added.

Philstocks said “we recommend buying on dips as it is undervalued already using the P/E ratio but limit your shares for now amid its downtrend movement and bearish sentiment in the market… We recommend this stock for long- term investors.”

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