‘Wall of worry’ opportunity to buy quality stocks

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Online brokerage firm Colfinancial.com said the current sell-off experienced in the market should be treated as “an opportunity to pick up quality stocks at cheaper valuations.”

“Given the current wall of worry caused by potential COVID (new coronavirus disease 2019) case surges and tighter lockdown measures, investors should adopt a ‘buy low, sell high’ strategy to take advantage of stocks that are being irrationally sold off,” it said.
Colfinancial.com said investors should look into consumer stocks that will benefit from reopening of the economy, and higher election spending.

“Despite higher COVID-19 cases, we do not expect 2022 to be plagued by the same levels of lockdowns we faced in 2021. The increased mobility, coupled with the 2022 presidential election should help spur consumption this year. Note that household consumption historically increased during election years. Over the past three election years, household consumption grew by an average of 3.8 percent in real terms. This is much faster compared to the 2.6 percent growth recorded during non- election years,” it said.

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Colfinancial.com said inflation has started to normalize after reaching its peak in August last year, with the Bangko Sentral ng Pilipinas (BSP) targeting inflation to be within the 2-4 percent range for this year.

“This, together with the gradual resolution of global supply chain issues brought about by the reopening of more economies, should help consumer companies grow their topline while sustaining or even improving gross margins,” it said.

“Mall traffic recovery is expected to continue its recovery this year,” said Colfinancial.com, which bodes well for the property sector.

“Note that foot traffic in Ayala Malls reached 70 percent of pre-pandemic levels on weekends despite the Alert Level 2 restriction. Once Omicron cases start to slow down and vaccination rates rise, restrictions are expected to loosen up leading to higher mobility,” it said.

Colfinancial.com said the office and residential segments of listed property companies are projected to improve this year with the growth in office leasing expected to be driven by continuously by the business process outsourcing (BPO) industry.

“Meanwhile, the further relaxation of quarantine restrictions and uninterrupted construction (at a minimum capacity of 50 percent) should boost residential revenues closer to pre-pandemic levels.

Despite the end of the Fed’s quantitative easing, interest rates are expected to remain low and conducive for growth, which will help support affordable financing for homes,” Colfinancial.com said.

Banks are set to benefit from continued recovery of economy, the online stockbroker said.

“We expect the bank’s intermediation business to improve in 2022. Loan growth should slowly recover as economic growth rebounds. At the same time, we expect net interest margin to increase on the back of higher yields amid steady funding cost. The improvement in asset yields will come from a.) banks gradually rebuilding their bond portfolios amidst higher bond rates; and b.) as loan growth continues to recover which would improve asset mix. The possibility of rates hikes from the central bank will also improve lending rates,” it said.

“In our view, banks’ asset quality will remain healthy despite the recent tightening of quarantine restrictions. Note that despite the various lockdowns last year, the sector’s NPL ratio slowly improved starting June 2021. Meanwhile, we estimate that provisions will further decline this year on the back of the banks’ preemptive provisioning as well as improving asset quality outlook,” it added.

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