US Inflation Eases to 7.7% from 8.3%

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The US inflation for October 2022 has eased to 7.7% from the 8.3% in the previous month. This was much lower than expectation of an 8.0% inflation rate.

Looking at the underlying numbers, odds are now more in favor that the cooldown in inflation would be sustained going forward unlike what happened in September when core prices started to rise anew.

We note that core inflation (excluding the volatile food and energy prices) rose 0.3% MoM, slower than the expected 0.5% and core goods prices (ex-services) have finally declined at -0.4% MoM following consecutive increases since March. This has stirred hopes of a slowdown or even a pause in Fed rate hikes, as evident in US market performance overnight (DJIA up by 3.70%, S&P 500 up by 5.54%).

Analysis and Recommendation

We expect the PSEi to display same positive sentiment as well as it continues to take its cue from US markets. While it is still difficult to ascertain if the market has already bottomed out given that it is still unknown how much of the potentially longer recession abroad has already been priced in, we expect this to ignite a rally at least in the near-term.

Given that this could be a rising tide lifting all boats scenario with the earnings season now nearing its conclusion, bottomfishing could be ideal.

We are partial to the following stocks:

• CNVRG (Target Price: P35.00)
• SECB (Target Price: P140.00)
• GLO (Target Price: P3,040)
• ICT (Target Price: P237.00)
• GTCAP (Target Price: P640.00)
• MEG (Target Price: P4.40)
• ALI (Target Price: P43.90)
• SCC (Target Price: P44.00)

Note that this selection is based on the charts and upside to fair values as in the long run we remain partial to the banking sector and would steer away from the property sector and those that will be affected by a weaker peso (high $-denominated debt, net importers, and high $-denominated proportion of CAPEX) such as the telco incumbents and select conglos.

Do note also that for CNVRG and GTCAP, we may see some volatility following the transfer to MSCI small-cap index from MSCI standard index.

While rising inflation is worrisome, a revised stock picking strategy can certainly help investors hedge against inflation woes.

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