OUTLIER: SM Investments Corp.

DOMESTIC inflation concerns at home coupled with perceived weakness on emerging markets, in general, caused market players to unload some of their shares in Sy-led SM Investments Corp., making it one of the most traded stocks last week.
SM was the 7^th most actively traded stock with a total of 1.18 million shares worth P1.125 billion having exchanged hands on the trading floor from Sept. 3-7, according to data from the Philippine Stock Exchange.
On a week-on-week basis, its share price was lower by 2.9% to P938 on Friday from its Aug. 31’s closing price of P966 apiece. Year to date, the conglomerate’s share price is down 9.8%.
“[T]he inflation report at 6.4% and the weak performance of the peso contributed to the bearish sentiment on SM Investments to test the support at P928 and P920 this week,” said Cristopher Adrian T. San Pedro, certified securities representative at Unicapital Securities, Inc.
Fiorenzo D. De Jesus, research analyst at RCBC Securities, Inc., was of the same assessment, saying investors “were generally risk-off on equity assets in general” attributing it to both the higher-than-expected domestic inflation and the lower confidence on assets of emerging markets.
The 6.4% August inflation reading was the fastest since March 2009, piercing government and market estimates for that month. So far, inflation averaged 4.8%, higher than the central bank’s 2-4% target range for the year and below its upwardly revised 4.9% forecast for 2018.
While the country’s “strong economic fundamentals” make it attractive to hold SM shares in the long-term, recent developments are clouding its short-term outlook, analysts said.
“[SM] is in many investors’ portfolios (both active and passive investors) because it is the largest ‘proxy’ stock for the Philippine economy,” RCBC Securities’ Mr. De Jesus said.
“Our long-term outlook for SM still remains strong. However, inflation may remain a headwind for now as it shows no sign of slowing down this year due to continued peso depreciation and elevated oil prices, exacerbated by the more recent supply issues of rice and sugar. Investors may be considering the impact of inflation remaining elevated until next year,” he added.
“Until investors are assured the government and [the central bank] is taking more steps to curb inflation, sentiment for consumer-spending driven names may continue to be negative,” Mr. De Jesus said, adding that investors might reallocate their assets to cash or in defensive stocks.
Valuations for the SM stock were already elevated last week with an estimated 33 times its price-to-earnings ratio as of end-August “so selling may take the counter to levels that will become more desirable for investors, given the recent headwinds,” Mr. De Jesus said.
Meanwhile, Unicapital’s Mr. San Pedro sees SM trading between P908 support and P980 resistance in the short term.
“Assuming a bearish scenario, I expect the next support levels at P878 and P850.50 if the PSEi (Philippine Stock Exchange index) goes below 7,400,” he said.
SM’s unaudited consolidated net income after taxes amount to P29.07 billion in the first half, 11.2% more than the P26.12 billion in the same semester last year, its latest financial statements showed. — Marissa Mae M. Ramos