Despite the negative impact caused by COVID-19 on the economy, the Philippine financial system remains quite strong, according to Benjamin Diokno, the governor of Bangko Sentral ng, the central bank of the Philippines. Diokno made this statement last week, speaking on behalf of the Financial Stability Coordination Council. He noted the crisis brought about by the coronavirus pandemic was different from past upheavals since it caused a direct shock to the real economy, the supply chains, and even to the welfare of families and individuals.
But based on the group’s analysis of market indicators and surveillance on what has been taking place since the onset of COVID-19, there are no indications as of yet that the Philippine financial market has been impaired irreparably.
What is the current trend?
Coronavirus cases have hit over 90,000 in the Philippines. But, thanks to the government initiative to slowly reopen the economy, the stock market has responded positively. Something reminiscent of stocks in Hong Kong with the likes of Tencent share price gaining as much as 7.94% on Tuesday. Tencent remains an impressive stock to follow post lockdown after registering daily gains over the past few weeks. The company deals with various internet-related services and products, AI, entertainment, and technology around the world.
Now, Philstocks Financial, Inc. is projecting the PSEi to end 2020 within the range of 6,550 – 7,050 due to the improving economy even though corporate earnings continue to suffer.
Before COVID-19 came around, Philstocks had projected the Philippine Stock Exchange index to reach 8,700 – 8,800 by the end of this year. Unfortunately, due to the economic disruption brought about by the virus, the brokerage firm isn’t that optimistic about corporate earnings this year.
Run up beneficiaries
In a statement made on Monday, Philstocks said that the saw PSEi member-companies averaging a -20% to +2% earrings come to the end of the year. The Philippine Stock Exchange index is composed of Blue Chips – stocks with a proven track record and daily trades with high volume and Class A stocks, which consists of blue-chip companies plus stocks that have been hand-picked by Pesobility which are worth watching out for. The PSEi closed Tuesday at 6,136.
According to Chaucer E. Tan, a research associate with Philstocks, in the second half, the PSEi is likely to range from 6,550 to 7,050. As for corporate earnings, they wouldn’t fair that well too. According to Tan, corporate earnings averaged 25.6% for PSEi companies in the first quarter. Normal earning growth for PSEi companies ranges at around 10%-15%. Therefore, to get to these levels, the earnings have to grow by at least 30% – 40% in the second and third quarters.
The problem lies in that the second quarter accounted for the majority of the period when lockdowns were enforced, stopping many businesses from operating. Therefore, Philstocks expects the quarter to be one of the worst-performing periods for listed companies.
Tan adds that they expect most companies to be on the negative side. As for the resilient sectors, they can be on the positive side, but their performance will not be as spectacular as expected.
According to Japhet Louis O. Tantiangco, a senior research analyst with Philstocks, the possible growth of the PSEi is dependent on the nation’s economic performance. If the recovery in the second half would move faster than in previous quarters, the PSEi has a chance to end the year closer to the 7,050 mark, but if the recovery is slow, then we can expect to see the stock market close the year at around 6,550.
However, Tantiangco warns if it comes to a worst-case scenario where earning continue to decline in the second half, then there is a chance the PSEi would fail to reach their year-end projections.
Claire T. Alviar, another research associate with the brokerage firm, added that recovery hopes now remain as the primary driver for PSEi to rise within the coming few months. If, in the third quarter, we start to see signs of recovery, then there is a chance the market will begin to attract investors. But, if the coronavirus numbers keep on rising, then investor sentiment may remain dull since people are worried we would be back to strict lockdowns that would shut down the economy again.
As of Monday, stocks on the Philippine Stock Exchange index (PSEi) were among the best-performing stocks when compared to other financial markets in South-East Asia. Other regional giants like Singapore, Thailand, and Indonesia were all in the red.
