The Philippine stock market’s new saving grace

Like many of its neighbors in the region, the Philippine stock market was badly battered by the COVID-19 global pandemic, with the Philippine Stock Exchange index (PSEi) dipping by 8.6 percent year-on-year.

As foreign investors headed for the exit door, retail investors are left holding the fort, emerging as saviors driving liquidity and moving the market.

In 2020, local investors accounted for 55 percent or P7.35 billion of the daily average trading volume in the PSE. Of this, slightly more than a quarter was from retail investors. In the first quarter of this year, retail investors accounted for more than 45 percent of market turnovers.

While investors, in general, remain cautiously optimistic about the Philippine stock market, retail investors continue to find gems in the battered market. These are mostly young, tech-savvy millennials who are awash with cash, and are trading online. Their sudden influx into the market is the reason many leading stock brokerage houses had to temporarily halt new account openings or invest in additional bandwidth to accommodate the surge of online trades.

The heightened participation of retail investors is a good sign that the local stock market still offers plenty of opportunities for those who are willing to look beyond short-term gains. With more familiarity with the local market and growing maturity in investing, these investors have been buoying up interest in listed shares and enabling the economy to recover faster from the impact of the pandemic.

Here are some of the opportunities they see in the Philippine stock market:

1. Potential to earn higher than bank deposit yields. Since the pandemic started last year, the Bangko Sentral ng Pilipinas (BSP) has been cutting its policy rates and banks’ reserve requirements to stimulate lending and consumer spending. This has been driving down interest rates to record lows, a trend expected to prevail throughout 2021. Cash-awash individuals thus turned to stock investing instead of placing their funds in banks which offer interest rates no higher than 2 percent per annum. In comparison, stocks offer the potential for a higher return (the average return in the Philippine stock market is 6.40 percent in the last 10 years).
2. More access to listed shares. One of the silver linings in the pandemic is the emergence of online stock trading due to digital transformation. This led to more market participants and opened up earning opportunities to more Filipinos, especially those who lost their jobs or closed their shops because of the pandemic. With more stock brokerage houses going online, building your wealth through stock market trading is now possible even without leaving the comfort of your own home. Investing in your favorite stocks takes just a few clicks on your smartphone or a few taps on your keyboard.
3. Exciting IPOs and REITs from capital-hungry companies. With banks reaching their single borrowers limit and turning more risk-averse, companies have been turning to the local bourse and the fixed income market to raise capital that will allow them to weather the pandemic. This has led to a proliferation of corporate issues and listings. This year, at least four real estate investment trusts (REITs) and three initial public offerings are expected to stir excitement among investors in the local bourse. This includes consumer food conglomerate Monde Nissin, which is expected to be the country’s largest IPO.
4. Poised for a recovery. Despite some setbacks, namely the continuous spike in COVID-19 cases which prompted the government to return to more restrictive measures in Metro Manila and nearby provinces, 2021 still promises to be a better year than 2020 for the PSEi. The vaccine rollout should lead to improved investor sentiment. However, the transitory nature of the crisis makes it difficult for stock market experts to forecast when the recovery will actually be.

Investing strategy

In this fickle environment, Edser Trinidad, head of Investments and Research at First Metro Asset Management Inc. (FAMI), advises investors to “buy the dips and look for reopening plays that are trading at a discount.”

He cited the telecoms and consumer staple sectors as the sectors most resilient during this pandemic. “A big portion of the workforce are in a work from home setup so demand for bandwidth surged, benefiting the telecom sector. The lockdown has also forced consumers to do pantry loading, which favored the consumer staple sector,” Trinidad explained.

For Mark Angeles, head of Research at First Metro Securities, cyclical sectors that can leverage on the economic recovery such as property, banks, and some consumer-related businesses have good earnings potential. Once the community quarantine restrictions are relaxed and more businesses are allowed to reopen, sectors related to restaurants, beer consumption, malls, cars, and property would also make good plays, he added.

Both investment gurus agree that the current market condition presents a good opportunity to invest as the market now has limited further downside. Foreigners holding Philippine shares are now at a 10-year low so the selling pressure from foreign funds has now eased.

“Cost averaging is highly encouraged. Do not invest in one swing! Invest in tranches. Buy during market dips,” said Trinidad. He quoted legendary Omaha investor Warren Buffet, who said: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”