Philippine Stock Market Research

March 11, 2020

Yield in the Time of Corona


One day way way back in college, I was riding a jeep to the university.  It’s the cheapest public transport here, and it was a one-way ride of half to a whole hour to get there from my home.  It was all routine and it seems like a nice day until the jeep’s axle broke from underneath while crossing EDSA.  I was seated at the right side in front, and the jeep tilted that direction, slammed on the road, skidded and stopped.

Everyone got out immediately except me since I was still feeling the brunt of the impact.  When I got out, I saw that I lost skin on my right arm and foot.  I also saw the bone of my foot, and the next thing I know was that I was in the hospital being treated with tetanus shots directly on my arm and foot.  It was an accident I was lucky enough to escape death and from being the one-armed or one-legged analyst or both.


Accidents happen whether we like it or not, and that seems to be what the corona virus outbreak from Wuhan, China is to the stock market.  It came out of nowhere, a non-factor out of nowhere.  It brought down interest rates, oil prices, mall traffic, movie attendance and others.  Its magnitude is at least comparable with the sub-prime crisis of 2008 to 2009, and it kills 2% of those afflicted from it.

The Deflection Point

Since we started in 2009, we rode the stock market in periods of irrational exuberance and depression.  Our most memorable call of irrational depression was back in 4Q15 when an institutional client expressed fears on following our reco on loading heavily on stocks.  They did not regret that move as the PSEi surged in 1H16.  We also warned of the peak and all-time high of January 2018 after seeing it clearly as early as 4Q17.

With the corona virus, it is somewhat different because it is not just something we can easily input into our model like the earlier examples.  Stock prices are depressed, but it is a cautious period.  What we know so far is that the highest Margin of Safety rate recorded by the PSEi was 3.27% back in January 2009 in the sub-prime crisis when the PSEi was at 1,825.10.  It was 3,052.7 after 12 months and 4,201.1 in 24 months.

With that, one may instantly say that 3.27% is the deflection point wherein the PSEi bounces from 6,312.61 to 10,302, the current peak in our PSEi Bands.  First, we’re just almost at 3.27%.  Second, the deflection point from the corona virus outbreak is higher and currently 6.11%.  The PSEi is around halfway from that.  Think of it also that a vaccine may be made in six to 18 months.  So we’re basically looking at a 2H21 recovery.

Our Preferred Asset Class is…

The natural reaction from this is to sell all stocks; but in the last couple of years, fund managers have been scrounging for yield in the time of falling rates, negative rates and stock market volatility from the trade war and others.  Of course, one would like to recoup booked losses from selling stocks, but where is the yield?  Is it from a small business, real estate, time deposits, lending to a relative?  Your cash have to generate yield.

That brings us to high cash dividend yielding stocks less affected from the corona virus outbreak.  They are those established slow growth and stalwart stocks according to Peter Lynch.  In bearish times, they are the steady source of yield, and they come from cash dividends.  From these stocks are ones that are steady and not ones from the sectors of airlines, fuel and oils, malls, property, tourism, gaming, hotels and restaurants.

They are the indoor-related stocks providing basic needs, and they also pay more than 4% in cash dividend yields.  We have six of them in radar.  Sitting out the volatility with them gives you 4+% this year and conservatively 3+% in 2021.  The cash dividends generated can be reinvested when bullish times return along with the at least 30% cash in one’s portfolio as previously discussed in Calibrating Cash to Stocks Ratio.


This is yield that can be derived and grasped with less uncertainty in the next two years.  As for us, we’ve been practicing this since November 2018 as the PSEi wandered mainly in the range of 7,500 to 8,400 in 2019.  It didn’t really fly and even plunged this year.

However, an average yield of 4+% per annum from 2019 to 2021 is more than satisfactory in this time of masks, quarantine and illness.  Just like in GGM’s Love in the Time of Cholera, love is patient, and it will arrive in the best possible time.  In this case, it’s the love for huge share price appreciation gains.

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