Ukraine war, inflation, interest rate concern to weigh on stock market

The local stock market will continue to be influenced this week by the ongoing invasion of Ukraine as well as its impact on inflation and, consequently, interest rates.

“The Russia – Ukraine war and its impact on the global economy, primarily on oil prices, is still expected to weigh on sentiment. A resurgence of global oil prices could bring the market below its said support range,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.


He added that, “The market is also expected to watch out for the Federal Reserve’s policy meeting next week where the possibility of a rate hike is already seen amid the US’ high level of inflation.”

“If the Fed goes for an aggressive rate hike, or hints of such to be done in their succeeding policy meetings, then it is expected to add to the downward pressure on the local market,” Tantiangco explained.

Stock brokerage 2TradeAsial noted that, the political climate has made the Fed’s next meeting more complicated and polarizing. A quarter-point rate hike for March is the consensus at the start of January, but a 50-bps hike is now looking justifiable, in the context of recent headlines.”

Supply chain disruptions due to sanctions imposed on Russia are now being felt globally and said “Energy, automotive, metals are just some of the sectors being heavily hit on the supply-side, which could cascade indirectly on global inflation; note the possible two-fold effect on net importers such as the Philippines, amid a much stronger dollar.”

These negative factors may be offset by the sustained improvements in the country’s COVID-19 situation, and the prospects of further easing of restrictions may give support to the local market.

“Next week, investors are also expected to watch out for our Overseas Filipinos’ remittances and labor market data for clues on the local economy,” said Tantiangco.

“The silver lining during any crisis, as the pandemic taught us in 2020, is that broad-based meltdowns provide openings to accumulate companies of real value at a discount. Stay extra diligent and selective; gravity dictates that everything that goes up must come down, but cream always rises to the top,” said.

Although the consumer sector will be hard hit by rising commodity prices, COL Financial said “we believe that there is an opportunity to capitalize on the weakness of the sector once commodities peak.”

It added that, “we want to reiterate that a number of consumer companies are already trading significantly below their historical average price-to-earnings multiples with substantial upside to our fair value estimates.”

“Our top picks are Puregold Price Club and Robinsons Retail Holdings Inc. As retailers, PGOLD and RRHI are in a better position to pass on higher input costs to their consumer,” COL said.

Meanwhile, manufacturers will likely suffer from margin squeeze due to higher commodity prices.

“Nonetheless, we are selecting Universal Robina Corporation to be our contrarian pick for the consumer sector as we believe that the downside risk to our forecast has already been priced in by the market and any retracement in soft commodity prices should benefit URC,” COL said.

COL is also recommending a BUY for Aboitiz Power “as we believe that the company’s earnings have already bottomed out (with 2021 earnings increasing by 68 percent year-on-year out following a 24.6 percent decline in 2020 due to the impact of the Covid-19 pandemic).” T

he brokerage also has a BUY rating on DMCI Holdings Inc. as the rise in commodity prices is boosting the earnings of its coal and nickel mining businesses.

It added that, DMCI is trading at an estimated 2022 price-to-earnings ratio of of 4.8 times, below its historical P/E of 11.2 times.

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