Philippine Stock Market Research

January 3, 2021

4Q20 Recap 1Q21 Philippine Stock Market Outlook

From the doldrums of 9M20, the PSEi staged a rally in 4Q20.  This was a euphoric rally fueled by COVID-19 vaccine developments and the gradual re-opening of the economy.  From 19.28x price to earnings ratio (PER) in September 30, 2020, the PSEi surged to 28.42x PER in December 29, 2020. 

The PSEi PER surpassed the last high of 28.21x PER last January 1997.  This was right before the Asian financial crisis.  In its euphoria, the market has written-off the pandemic and is looking forward to a post-pandemic environment or the return to normal times. 

At 2022F Philippine GDP and PSEi-stock components earnings, however, the PSEi is still toppish at 21.41x PER.  Historically, the PSEi peaks and reverses at around 22x PER.  The PSEi hit our estimated peak in December and has been on a general downtrend for two weeks to close 2020. 

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 PSEi and the ASI by a wide margin.  The average cash dividend yield of the stocks portfolio is also 2.38%. 

The COVID-19 vaccines are a welcome development and falls within our timeline of March to end 2021 for distribution and mass vaccination.  However, there is another threat to the global stock markets and economy.  It is the bloated US markets of stocks, real estate and debt. 

When the Federal Reserve lowered interest rates to boost the US economy, this inflated stock and real estate prices.  Debt also went up mainly for use to buy stocks and real estate.  Now this bubble has grown with the S&P 500 PER ballooning from an average of 21.99x in 2019 to 37.85x in December 2020. 

At the rate it is climbing, the S&P 500 is estimated to peak five days from now at 3,950.  This mark and beyond it makes the S&P 500 susceptible to a deep drop.  Interest rates may reverse on inflation pick-up causing debt to become expensive and bonds more attractive. 

The PSEi is not out of the woods yet.  It is still deep in the woods with mass vaccination seen in 2H21 to 2022 and the US stocks and economic bubble looming and shadowing over the world.  Another opportunity for deep bargain stock prices is seen coming, and it is best to be prepared for this. 


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