MANILA, Philippines – The Philippine Stock Exchange index (PSEi), the benchmark that measures the performance of the local stock market, fared well at the start of the Duterte administration. In his 4th year in office, however, prices fell to record lows amid the coronavirus pandemic.

The local stock market crashed to an 8-year low on March 19, two days after the government imposed the Luzon-wide lockdown. The coronavirus crisis wiped out P1.16 trillion in the stock market when the index closed at 4,623.19 on March 19.

The last time the index closed that low was on January 26, 2012, at 4,611.6. The difference was that it was a bull market then.

The day-to-day decline on March 19 was at 13.34% – steeper than when the local stock exchange first implemented a “circuit breaker,” or the 15-minute trading halt to curb panic selling, on October 27, 2008, during the global financial crisis. The index fell by 12.3% that time.

A week before March 19, when rumors of a possible Metro Manila lockdown circulated on March 12, the index fell by over 10% during intraday trading amid fears of the coronavirus’ economic impact. This triggered the second circuit breaker in the country’s trading history. The index eventually closed at 5,736 that day, down by 9.7%.

Corporate earnings also took a hit in the 1st quarter of 2020. Of the top 30 publicly traded companies, 23 reported lower profits for the January-March period. (READ: No-touch faucets, rapid tests: Big business adjusts to coronavirus)

Only 6 companies recorded an increase in profits year-on-year: Robinsons Land Corporation, LT Group Incorporated, Robinsons Retail Holdings Incorporated, Security Bank Corporation, Puregold Price Club Incorporated, and Megaworld Corporation.

As lockdown measures eased, the market gradually started to recover. The PSEi entered the 6,000 mark again in early June when Metro Manila transitioned to general community quarantine (GCQ). The index has been playing within the 6,000 level since June 2.

Still, company earnings in the 2nd quarter of the year – which would be available starting around August – could be worse considering that many sectors had to stop or reduce their operations due to the strict quarantine measures implemented in April and May.

Pre-pandemic situation

The equity market, of course, is not the entirety of the Philippine economy. The PSEi only represents the activities of buying, selling, and issuance of shares of the top 30 publicly-held companies in the country. Still, it is used as a gauge to observe the country’s general business climate.

The PSEi was performing at the 7,000 to 8,000 levels in 2019 before the coronavirus crisis started. Analysts say this can be attributed to several external factors.

“There is positive perception about the economic reforms that are lined up in the legislature even before the COVID-19 pandemic struck. Proposals, such as the corporate tax reform and incentives rationalization, the services sector definition, and other tax reforms are good market signals to the local stock exchange,” said Union Bank of the Philippines chief economist Ruben Carlo Asuncion in an email on June 25.

Luis Limlingan, managing director of fund management company Regina Capital Development Corporation, also said that some of the factors that affected the local bourse in the previous year include the improving global trade climate, low inflation rate, and effective policies implemented by the Bangko Sentral ng Pilipinas (BSP).

“There was outflow from emerging markets into China. That was one of the bigger events,” Limlingan said in a phone interview on June 25. “I think also with the BSP’s change in the rate policy – because they became very aggressive in lowering the rates, the reserve requirement. And then inflation remained benign.”

In 2019, 4 companies launched an initial public offering (IPO). These were Kepwealth Property in August, Axelum Resources Corporation and AllHome Corporation in October, and Fruitas Holdings Incorporated in November.

“The demand for take-up was strong. Performance-wise, they were doing well in the beginning. But I think because of what happened during the pandemic, they’re all suffering right now,” Limlingan said.

This year, only Injap Sia’s Merry Mart Consumer Corporation has so far publicly listed on the PSE. The company launched its IPO on June 15.

What to expect in the coming months

The PSEi breached the 9,000 mark in January 2018 – incidentally just a year and a half into the Duterte administration. Since then, the index had played within the 7,000 and 8,000 levels before the pandemic hit.

Although the PSEi seems to be slowly recovering from the effects of the pandemic, the possibility of a second wave of coronavirus infections both in the Philippines and the United States is expected to hamper the recovery of the index.

“If you look at a month ago, we were trading at around 5,500. And when they announced we’ll be improving to GCQ, we saw a lot of buying, particularly the foreign funds, to about 6,000. However, because of the scare, there was a correction,” Limlingan said.

Both Limlingan and Asuncion said returning to the 8,000 to 9,000 levels during the rest of the Duterte administration would be hard, but possible.

“Of course it’s more challenging, but since we already reached that before [it wouldn’t be impossible],” Limlingan said. “And then I think, normally, if you look at past administrations, the last two years – that’s when the government ramped up its spending especially for infra projects. So maybe that will help as well.”

Asuncion added that the further recovery of the market would also ultimately depend on the improvement of the COVID-19 situation in the country.

“A vaccine is a game changer. Even an effective therapy or antiviral drug may cause a huge bounce that we may see pre-COVID levels again. I think, like the case for what shape of economic recovery would the Philippine have, the PSEi would easily respond to a discovery of an effective vaccine or the quality and success of virus containment efforts by the government,” Asuncion said.

It would also depend on how quickly the country returns to “business as usual,” Limlingan said, although he noted that there would be some headwinds in this aspect considering that there are still a lot of sectors that cannot resume yet – such as travel, tourism, entertainment, and sports. He noted that these sectors will be most affected.

Limlingan added that there are also other events that will have an impact on the local stock market in the coming months. “Tied to pandemic, I think they (the investors) will be monitoring the tension between the US and China because I think they want to enforce stricter trade policies. And then even the US elections,” he said.

The initial shock the pandemic brought may have already passed, as seen in how the prices recovered from the slump that forced the PSEi back to the 4,000 level. For Asuncion, there are still bright spots that can be seen in the local equity market today, such as the IPO of Merry Mart and its “stellar performance” so far.

“Again, even though the threat [of a second wave] is lingering, there seems to be some sense of acceptance that COVID-19 is here to stay,” Asuncion said. – Rappler.com