April 2, 2020

1Q20 Recap 2020 Philippine Stock Market Outlook

The COVID-19 pandemic brought down world stock markets including the PSEi in 1Q20. Luzon is under a month-long Enhanced Community Quarantine (ECQ) ending April 12, 2020. Cebu and Davao have their ECQs as well, and most businesses are closed except basic services such as power, water, groceries and others.

Schools are closed; people are confined in their homes. Medical personnel are busy treating patients; police and soldiers are stationed at checkpoints. Temperature checks and disinfecting of vehicles are conducted in every checkpoint to stop the virus. As of this time, there are 2,311 cases, 96 deaths and 50 recoveries.

The PSEi dropped to a low of 4,039.15 on March 19, 2020 after a two-day trading suspension ironically meant to arrest massive profit-taking. From a high of 9,078.37 on January 29, 2018 to that low, the PSEi erased almost eight and a half years of increase. The PSEi is suddenly back to 4Q11 to 2012 levels.

Under the metric we use to identify the PSEi’s position within oversold and overbought levels, that is recorded in our history book as the most significant drop since the PSEi’s inception in 1994. It topped the other major drops of 1997, 1998, 2002 and 2008.

Below are other views of the PSEI’s drop along with the All-Shares Index (ASI) and the recommended 2019 and 2020 Stocks Portfolios. The losses of the stock portfolios are still lesser than the PSEi and the ASI as of 1Q20, but they are in the same movement and trajectory all together.

Like the other major drops, there will most likely be two to three shock-waves after March 2020. There are various and plentiful of causes to make those shock-waves. Potentially, they are the contraction of corporate earnings and GDP, next waves of infection, supply chain disruptions and others.

In our Daily last February 3 when the PSEi was 7,201, we were able to provide guidance when we introduced rock bottom to our stocks research service client. It is a moving floor estimate of the PSEi in case of a meltdown. This proved to be valuable as the PSEi continued to fall as COVID-19 spread across the globe.

The decline of the Philippine and global markets and economies can only be arrested when the cure and vaccine is successfully made against the virus. A vaccine takes six to 18 months to produce taking the timeline of this crisis well over to 4Q20 to 4Q21.

Having only started in 2009 but with 28 years of experience, this is our fourth economic crisis and second pandemic. The last three pandemics were HIV/AIDS from 2005 to 2012 with 36 million deaths, the 1968 Hong Kong flu pandemic with 1 million deaths and the 1956-58 Asian flu pandemic with 2 million deaths.

Though stock prices are cheap, our reco for all is to keep sufficient funds to last through this crisis and pandemic. Stay home, practice social distancing and frequently wash your hands for 20 seconds especially if you came outside your home. This is a reco for the times, and yields can eventually be chased. Stay safe and be safe everyone.

-oOo-

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