Share prices in the Philippine Stock Exchange are not likely to dip back to 2020 lows, according to online stockbroker Colfinancial.com.
Colfinancial said while concerns are high over the rising cases of new coronavirus disease 2019 (COVID-19) infection and the challenge of inflation, investors can be comforted by the “small likelihood the government will reimpose enhanced community quarantine (ECQ), the availability of vaccines, the ongoing global economic recovery and the cheap valuation of stocks.”
“Admittedly, being cheap is not a good enough reason for stock prices to move higher.
However, every crisis creates opportunities and stocks would not trade at such a cheap valuation if there were no problems. Consequently, the market’s prevailing weakness is an opportunity for patient investors to make money over the long-term,” it said.
Colfinancial.com said the stock market fell sharply the past few weeks as the number of daily new COVID-19 cases jumped to a record high of more than 8,000, resulting to tightening of restrictions that is expected to negatively affect consumer confidence.
“Coupled with the steep rise of inflation, the Philippine stock market has decoupled from the rest of Asia and is now the region’s worst performing market in 2021,” it noted.
As of end-Wednesday, the PSEi index (PSEi) was down by 9 percent for the year-to-date period, while the MSCI AC Asia Pacific index was up by 3.2 percent, Colfinancial.com noted.
The PSEi, however, may not see retesting the 2020 low of 4,600 or going below 5,000 for the following reasons, it said.
Colfinancial said the government is not expected to reimpose an ECQ — the strictest form of lockdown — given the negative economic implications.
“There are also other less economically damaging ways to control the spread of the virus such as making sure Filipinos practice minimum health standards (mask wearing, social distancing, frequent hand washing), early diagnosis through testing and contact tracing, enforcing localized lockdowns, and accelerating the vaccination process. Although the government tightened restrictions recently, it allowed most businesses to stay open,” it said.
“It also did not reduce the availability of mass transportation which was one of the things it did when it reimposed MECQ in August last year,” Colfinancial.com added.
The online stockbroker said vaccine is available relative to a year ago though the Philippines is “still facing challenges in procuring vaccines and getting them in arms.”
“Conditions today are still much better compared to last year as the availability of vaccines will allow economic conditions to return to pre-pandemic levels faster than if there were no vaccines and reduce the risk of a double dip recession,” it said.
At 6,497.01, the PSEi is now trading at 17.7x its 2021 expected P/E ratio, slightly below its 10-year historical average P/E ratio of 17.9x, Colfinancial.com said.
“Moreover, 24 out of the 30 stocks that are part of the index are trading at a significant discount relative to their own 10-year historical average P/E ratios, with some even trading below their book values. Although the Philippines’ near-term economic outlook is poor, the stock market is not pricing in anything better given stocks’ weak year-to- date performance and below average P/E ratios,” it said.
“Admittedly, stocks could stay depressed until the government successfully controls the number of infections,” Colfinancial said.