Stocks outlook banks on U-shaped recovery


    Online stock brokerage firm said the Philippine Stock Exchange index (PSEi) can recover to around 6,300 for the year before potentially hitting 7,000 by next year in a post-new coronavirus disease 2019 (COVID-19) scenario.

    April Tan, chief equity strategist, said this is on the backdrop of a U- shaped recovery of the economy and if foreign investors continue liquidating positions in the local stock market.

    “However, neither do we expect the market to retest previous lows. Financial conditions are better today versus previous crises while most listed companies have already seen the worst. The said factors make selected stocks attractive to buy and (for investors to) start accumulating,” she said.

    Tan said the recent 32.7-percent recovery of the PSEi after the first quarter slump to 4,600 will not be sustainable.

    Tan said the COVID-19 pandemic exacts a large toll on the economy as displayed by the 0.2 percent economic contraction in the first quarter of the year.

    “We expect the second quarter to be bad,” said Tan, adding that businesses may not be able to cope if the country goes back to stricter quarantine measures.

    Tan said it will then be difficult to expect businesses to actually increase investments “because there’s so much uncertainty going forward.”

    Tan also noted the pandemic’s impact on unemployment as businesses pause hiring, affecting people’s spending capacity.

    “The private sector is really very cautious at this stage,” she said.

    The pandemic also limits the government’s space to aggressively pump prime the economy, according to Tan.

    “The objective of the government right now is to pick and choose and to reallocate spending towards projects that are expected to have the biggest multiplier effect rather than do what say the US is doing, which is giving out money to people,” she said.

    This has an impact on majority of Philippine businesses which are consumption-dependent, Tan said.

    She said under the projection of a 7,000 points close by next year, the PSEi will be trading at a price-to-earnings ratio of 15.3x.’s outlook coincides with ING Bank’s analysis, describing the COVID-19 pandemic as a “kryptonite” to the Philippines’ growth story — “sapping all of our strengths and exposing a lot of our weaknesses.”

    “We have to contend with a recession,” said Nicholas Mapa, ING Bank senior economist for the Philippines.

    Mapa said even after the Philippines recovers from this contraction, it may take a while before the country gets back to its historical average GDP growth of 6 percent.

    “Economic data crashed really, really, to new depths at historic lows in March and April… as we bounce, (it will be) very difficult to get back to pre- pandemic levels,” Mapa said.

    “Consumption has always been the backbone of our economy and was the star player of the Philippine economy. Household consumption is going to be shell-shocked. It will stay that way for a while. Monetary policy did its part, in fact a lot of heavy lifting done by the central bank, cutting very aggressively. But is that enough? Maybe we need some fiscal help,” he added.

    Mapa noted over the past few years, consumption was contributing 4.4 percentage points to GDP growth, but as the pandemic hit, it was only recorded at 0.2 percent point in the first quarter.

    “Now all of a sudden the true foundation of that good (GDP) story, the consumer and his rock solid prospect for earning income, is now out the door,” Mapa said.