A rout that’s made the Philippine benchmark equity gauge the worst performer in the Asia Pacific region risks worsening in the wake of fresh virus curbs.
The Philippine Stock Exchange Index has tumbled 7.7% so far in 2021. While a two-day bounce has lifted the gauge above a critical 200-day support line, surging COVID-19 infections and fears of a lengthy lockdown in Manila have prompted investors such as Gerard Abad to hoard cash as they brace for further turbulence.
“There is more downside risk at this point in time,” said Abad, chief investment officer at AB Capital & Investment Corp. His cash holdings have doubled since the start of the year as he expects the stock gauge to retreat to as low as 6,000 if the virus curbs fail. The measure ended Tuesday’s session at 6,590.11.
Tough challenges are ahead for Philippine stocks that have suffered unprecedented withdrawals of foreign funds, illustrating the fragility of some emerging markets even amid the global vaccine rollouts. Shares in India and Thailand are also under pressure due to curbs to contain rising infections.
A spike in virus cases since mid March spurred the Philippine government to reimpose lockdowns in Manila and four neighboring provinces for at least two weeks through April 11, a blow to the economy’s bid to bounce back from recession.
Some others are less pessimistic on local stocks.
While the lockdown has a “chilling effect,” the index would not probably fall beyond the 6,300 to 6,400 level with the approval of a law cutting corporate taxes, according to Robert Ramos, head of trust and investments group at Rizal Commercial Banking Corp. While he pegs this year’s upside at 6,800, he said he’s not deploying all his cash.
“The tax benefit will definitely help companies but consumption has to happen,” Ramos said. “A GDP surge may not happen in the second quarter as initially expected but I am hopeful spending will pick up in the third quarter when infections go down and vaccine rollout speeds up.”
Still, the two-week lockdown is expected to shave off 0.8 percentage points from full-year growth this year, Economic Planning Secretary Karl Chua said Monday. Expansion this year “is going to be lower than what we expected” as virus cases surge, Finance Secretary Carlos Dominguez said Tuesday.
The nation’s equities are at the weakest correlation to their Asian peers since 2017, a sign of expectations that the Philippines will lag its neighbors in economic recovery as it trails neighbors in vaccinations.
“The bigger fear in the market is our credit rating could be downgraded because of the murkiness of the economic rebound,” Abad said. “A prolonged lockdown puts everything at risk.”
Assuming the curbs succeed, vaccination speeds up and the recovery in earnings gains traction in the second half, he said the stock gauge’s upside this year is at 6,800 to 7,000 levels. – Bloomberg
