Market tries to swim around Hanjin-caused iceberg

After a strong start this year, the bulls are seen to take a break in the near term as investors reassess recent gains and digest the recent impact of the Hanjin bankruptcy.

Last week, the main-share Philippine Stock Exchange index (PSEi) gained 142.98 or 1.84 percent to close at 7,904.09 on Friday, during which the index pared earlier gains as a knee-jerk reaction to the Hanjin bankruptcy which was seen to affect five Philippine creditors with a combined exposure of about $412 million.

“With or without the Hanjin news, the upside on the index appears limited,” said Ron Acoba, chief investment strategist for equities research firm Trading Edge Consultancy. He noted the 12-month target market consensus for the PSEi was only at 8,200, but the index had already hit 7,950 in mid-January.

“Upside more or less is only 3 percent compared to the one-year government bond yield of 6.6 percent. Relatively, it’s now more logical to take profit on the local market given the 3-percent upside and switch to a one-year government bond,” Acoba said.

He noted the impact of the Hanjin issue, on the other hand, would be limited to the banking sector, specifically— RCBC, BDO Unibank, BPI, Metrobank—and their parent conglomerates.

“For the big banks, assuming they write off their loans to Hanjin, that would translate to 11-13 percent of their 2018 annualized net income. For RCBC, which has a reported exposure of $140 million, it may actually eat up to a year and a half of their profits. It’s actually big, but only temporary,” Acoba said.

“Having said that, the market may take the Hanjin default to take profit or sell banks and their parent firms (conglomerates Ayala Corp., SM Investments and GT Capital). Profit-taking actions on these would of course weigh on the index in the near term,” he said.

The selldown on these banks and their parent conglomerates started on Friday.

BDO Unibank chief strategist Jonathan Ravelas said last week’s close at 7,904.09 signaled the market still had the momentum to try the 8,000 level, having hit 7,992.33 as intra-week high prior to Friday’s news about the exposure of local banks to Hanjin.

“Look for another assault toward the 8,000 levels. However, failure to clear the 8,000 levels could trigger some profit taking back toward the 7,500/78500 levels,” he said.

Eagle Equities head of research Christopher Magun said the PSEi may pull back this week as markets around the world performed extremely well last week, thus could spur profit-taking. However, he was not ruling out another break of the 8,000.

“A pullback scenario is more favorable for our market right now as we don’t want to see it go too far, too fast and it also gives more investors the chance to get in at lower prices. But the fact is, positive momentum continues to pick up and is showing no signs of slowing down especially as we approach 8,000. Whichever way it goes [this] week, we are still extremely bullish on this market,” he said.