The local stock market will take inspiration from August’s inflation rate announcement this week, as investors remain cautious amid rising costs, a weak peso and interest rate hikes.
“The aggressively hawkish policy outlook from the Federal Reserve should further weigh on the local market next week, especially if rising US interest rates and falling Philippine peso continue,” said Japhet Tantiangco, senior supervisor at Philstocks. Funding for research.
He added that “at the same time, the local market should take inspiration from the economic data coming next week, mainly from our August inflation data.” “A slowdown in our inflation should boost sentiment while a further increase should add weight to the market,” Tantiangco explained.
While the last quarter saw inflation remain in a fairly stable, albeit high, range; 2TradeAsia.com continues to warn of “greater pressure on the retail segment of the value chain, as shelf prices have yet to fully catch up with rising input costs.”
“This view is preserved and reinforced by a weak peso (historic low since 2004), adverse weather conditions since early August (additional pressure on agricultural products) and, more recently, the lockdown of Chengdu, which may reflect some Shanghai’s earlier shutdowns and risks once again disrupting the supply chain (Chengdu is a manufacturing megacity with a population of 21 million),” he added.
He noted that “the short is that the data has yet to convince markets that inflation is peaking anytime soon, and valuations should reflect that.” Meanwhile, Tantiangco said “investors should also watch the Philippines labor market numbers in July for clues on the strength of the local economy.”
“The downside risks – new CPI spikes, Fed rate hikes – for the remainder of the third quarter and the fallout into the fourth should bring market excitement back to earth. The silver lining is that these risks will not are by no means new and unique… Range trading while the broader market remains looking for a soft landing,” advised 2TradeAsia.com.
For stock selection, Abacus Securities Corporation looks for companies whose business will benefit from seasonal factors during the last four months of the year or “BER” month.
He noted that consumer and retail stocks will benefit from upcoming holiday spending, particularly SM Investments Corporation and Robinsons Retail Holdings Inc.
The Keepers Holdings should also benefit from an increase in revenue thanks to the recovery of consumption of its on-site alcohol products, while D&L Industries should outperform in these months as in recent years.
For conglomerates, Abacus prefers GT Capital and SM since their first-half core earnings are already at or above pre-pandemic levels.
For banks, his top picks are BDO and Metrobank, although he is also positive on Security Bank due to its low valuation and improving outlook.
Meanwhile, Abacus is also advising clients to overweight Metrobank, especially with its recent declaration of cash dividends which pushed its 12-month yield to 5.67%.
“This is the second highest among the nine universal banks we track and well above that of its two biggest peers,” he said, also noting the bank’s high coverage of non-performing loans. which protects it from a potential increase in bad debts.
COL Financial raised its forecast for Jollibee following stronger than expected second quarter results and raised the stock’s rating to BUY.
“We have increased our 2022 system-wide sales (SWS) by 12% and our revenue guidance by 10%, as we expect the momentum from the second quarter of 2022 to continue into the second half…Similarly, our net profit forecast rose 22.5% to P9 0.2 billion,” he 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. Additionally, we believe the Chinese segment will continue to recover as the country’s restrictions ease.
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