Online brokerage firm Colfinancial.com said lukewarm foreign fund sentiments are holding back a strong rebound for local stocks.
Colfinancial.com despite the “improving outlook of the global economy and the expensive valuation of COVID-19 (coronavirus disease 2019) proof stocks,” there are still no indication of “any rotation into emerging markets, such as the Philippines, and COVID-19 sensitive issues, such as banks and property stocks, which are trading at much cheaper valuations.”
The uncertainty as to when the COVID-19 pandemic will come to an end as the number of daily new infections remains elevated around the world, there is an increasing threat governments could reimpose lockdowns or tighten restrictions which is not good for economic growth, Colfinancial.com said.
It added while COVID-19 resilient stocks have been outperforming the Philippine Stock Exchange index (PSEi) since March “unfortunately, it seems like the improving outlook of the global economy are not compelling enough reasons to trigger a rotation into emerging markets, such as the Philippines, and COVID-19 sensitive issues, such as banks and property stocks, which are trading at much cheaper valuations,” it said.
“The Philippine market also continues to suffer from net foreign selling during the month of September, while value turnover remains very thin,” it said.
Colfinancial.com said the Bayanihan 2 law negatively affects earnings visibility of banks and property companies locally. Banks were required to implement a mandatory 60-day grace period on loans outstanding falling on or before Dec. 31, 2020.
“This will make it more difficult for banks to determine its borrowers’ ability to pay, delaying the visibility of NPL (non-performing loan) formation to sometime next year.
Borrowers’ payment behavior might be affected as they grow accustomed to not paying anything during the grace period,” Colfinancial.com said.
It added while Bayanihan 2 will allow banks to stagger the booking of allowance for credit losses over the next five years, banks are not keen on leveraging of this benefit, preferring to “book more allowances this year because they can offset this with the substantial trading gains they expect to book as a result of the steep decline in interest rates.”
But Colfinancial.com said COVID-19 sensitive stocks are “ready to turnaround soon” and that investors with a long-term investment time horizon should continue accumulating these stocks that are trading at very cheap valuations.