October 5, 2020
9M20 Recap 4Q20 Philippine Stock Market Outlook
After recovering from the February to March drop, the PSEi lingered on a slow downward trend in 3Q20. The market was buoyant in the period on COVID-19 vaccine developments and the gradual re-opening of the economy from the stringent ECQ to the looser GCQ.
The PSEi was also hesitant to go beyond 6,000 as growth sputtered as the country and businesses adjust to operating in the pandemic. The drop from pre-COVID-19 to COVID-19 earnings levels has abolished companies’ expansion capex, tightened cash-flow and increased leverage positions.
As economic outlooks and projections were revised downwards in 3Q20 by the major financial institutions such as the ADB and World Bank, PSEi resistance levels were likewise decreased. Even a new immediate resistance level arose due to this.
Generally, GDP contraction estimates for 2020 are around 7%, while growth of around 6.5% is projected in 2021. The latter already assumes recovery that is yet to be realized through a safe and globally distributed vaccine, and this does not entice a rally to higher levels at this point in time.
The following is the consolidated performance of the recommended stock picks from the Philippine Stocks Books as of June 22, 2020, July 20, 2020 and August 24, 2020. The stocks have equal weighting in the resulting portfolio and mainly have qualities for growth and resilience.
More importantly, they are already stock picks made in the COVID-19 era. From two stocks in June, five were added in July and one in August. The stocks portfolio outperformed the loss-incurring PSEi and the ASI by a wide margin. The average cash dividend yield of the stocks portfolio is also 1.05%.
Of the 18 emerging and developed countries monitored, the PSEi was dead last in year-to-date return at negative 25%. Global PER likewise deteriorated from 18.8x in end-June 2020 to 31.5x in end-September 2020. This alone shows the need for market corrections globally.
The countries’ average GDP contracted by 12.48% in 2Q20 from a contraction of 1.45% in 1Q20. Only China, the country where the coronavirus originated from and spread all over the world causing 1.04 mn deaths as of this time, suspiciously posted GDP growth of 3.2% in 2Q20.
The vaccine timeline of 1Q21 to 4Q21 is still intact. The quality of earnings will remain generally poor despite the projected growth from 2Q20 to 3Q20 on the relaxation of quarantine measures. The rise in recent bond offerings also reflect companies’ weakened balance sheets.
Previously, we recommended keeping a good amount of liquidity for buffer during the pandemic. Unemployment has risen, OFWs are coming home and COVID-19 cases continue to rise. These are what that recommended buffer were for.
Current share prices are definitely a Strong Buy for a 15-month investment window. But, we and listed companies need to survive that 15 months. This is a real-world priority that is overshadowed by the gamified pursuit of short term gains by the stock market.
That is why we have set stocks-to-cash ratio per PSEi level and have set supports and resistance levels based on economic and earnings output to balance funds for their preservation and growth during this trying time. With this, we have outperformed the market and posted gains in the pandemic.
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.