Philippine Stock Market Research

April 21, 2020

Month One COVID-19 Lockdown

How Is Everyone?

It has been a little over a month now of the Enhanced Community Quarantine (ECQ) in Luzon and certain areas of the Philippines.  But before going over the Philippine stock market, we would like to ask “how is everyone doing?”  We ask this not only to those in the Philippines but to readers in the US, Singapore, Hong Kong, Germany, UK, Finland and the other countries in the world.  We are in this together.

Except for the front-liners, everyone is home around the world.  Fortunately, there is the internet and cable TV.  I kept thinking that if this happened in the 70s or 80s, people would be way better in chess, checkers, mahjong and cards by now.  People would be by the TV and radio and would probably be reading and re-reading anything from old newspapers to encyclopedias to pocketbooks at home.

The work-at-home routine is not new to us, but launching new services at this time is more challenging than usual.  What is new is the norm of having one family member go out in a mask to buy groceries, distancing against others by six feet, washing your hands for 20 seconds, placing the clothing you just wore in water and detergent when you arrive home and taking a bath before seeing your family members.

In this period, you begin to notice the necessity of cutting your own hair, and I was able to order electric hair clippers, watch YouTube on how to do it and suddenly look like a member of a Kpop boy band on the first try.  Yes, there are delivery services for stuff in the classifieds, some online shopping items, grocery and certain restaurant foods and drinks.

The front-liners are doing a commendable job.  They are not just the medical personnel but the police, military, garbage collectors, grocery employees, water and other delivery people and select local officials and public servants.  Leading this group are the medical personnel of doctors, nurses, janitors, staff and others.  A lot have fallen victim from the virus, and we pray for them.  We salute all the medical personnel.

Performance Assessment as Analysts

Which comes to us as analysts, did we do a good job in the advent and reign of COVID-19?  We always assess our performance in Corpecon Research.  That is why we have graphs of performances of stock portfolios we recommended against the market.  We first took action last February 3, 2020 when we introduced rock-bottom estimated that day at 4,408 to our client in a Daily because its possibility was increasing.

The PSEi was 7,201 that day, and actual rock-bottom materialized at 4,039.15 on March 19, 2020.  Of course, the market recommendation was a Strong Buy, and the PSEi did climb out of the pit to the 5,000 level on economic stimulus and hopes for and gamble on an immediate cure and vaccine.  Local institutional funds led the charge, while foreign funds were net-sellers.

The latter was understandable as the Philippine market under COVID-19 lost its main selling point to global funds.  It is that high GDP growth of around 6% per quarter since 2Q15.  With near zero business activity, there will be economic contraction in the Philippines and the rest of the world this year.  Oil is now USD1.67 per barrel.  That is not a typo.

Since the market is under crisis condition, we introduced a lower PSEi ceiling in our 1Q20 Recap 2020 Outlook Special Report last March 30, 2020.  The PSEi now at 5,592 is barely a Buy in our PSEI Bands.  There are also around 13 stocks with relevance in our universe under COVID-19.  Average cash dividend yield is now estimated at 1.67% from 2.72%.  Short term gains will be difficult, and most stocks are now Long Term Buys.

So from A to F, pass or fail, how did we think we do?  We think we failed.  It was unlike in the PSEi peak of 9,078.37 on January 29, 2018, when we first saw risk in October and called a Sell on December 2017.  That was an A.  Now we saw risk as early as February 2020 but failed to see how a microscopic organism can bring down the global economy and call Sell.  No excuses from us, that is an F.

Guidance and Outlook

The PSEi is so far behaving accordingly in the adjusted PSEi Bands from the latest rock bottom to ceiling.  1Q20 corporate and economic results are coming, and they will be horrendous.  The first 1Q20 results we’ve seen is from the Philippine Ports Authority (PPA).  Its net income is down 25% to PHP2.54 bn.  Now that can be a gauge to what other government agencies and private companies will be reporting.

After the climb, the PSEi is seen to be dampened by 1Q20 results.  This may also bring down the US market which has still been afloat as if there is no pandemic.  Now at 2,823, the S&P 500 (SPX) is 14% away from its immediate support of 2,418 and 33% away from its main support of 1,899.  Its rock bottom is estimated at 950.  These may sound ridiculous now, but the IMF did call times now the worst since the Great D.

And it’s only Month 1 of 12 to 18, the timeline for a vaccine against COVID-19.  That is why we recommended in our 1Q20 Philippine Stock Market Report to ensure and prioritize first funds for this span of time.  Investing in stocks comes second to Investing in Yourself and Your Family Being Comfortable During this Pandemic and Economic Crisis.

We’ve read that in Singapore, people used credit to buy stocks since they’ve been beaten down hard by the collapse of share prices last March.  Great idea, but it’s way too early.  Stocks now are great two-year Buys, but in the short to medium term, only a handful can generate you suitable cash dividends and probably share price appreciation as well.

We’ve called rock bottom before, we know what it is, and we can call it again.  We hate getting an F after 11 years.  We faced big bears three times during that period.  We called them twice, saw the Big One this year but did not react hard.  With the funds we were able to liquidate with profit plus cash dividends and other funds, we will be on the lookout for the Big Bull.  Stay Safe Everyone; We Will Eventually Rise.

-oOo-

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Disclaimer

This report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report. Pictures in this report cannot be copied or redistributed and are owned by Corpecon Research.