The new saving grace of the Philippine stock market

Like many of its neighbors in the region, the Philippine stock market has been hit hard by the global COVID-19 pandemic, with the Philippine Stock Exchange Index (PSEi) declining 8.6% year over year .

As foreign investors head out the door, retail investors find themselves at the head of the fort, emerging as saviors who fuel liquidity and move the market.

In 2020, local investors accounted for 55%, or 7.35 billion pesos, of the average daily trading volume in the PSE. Of that amount, just over a quarter came from retail investors. In the first quarter of this year, retail investors accounted for over 45% of market turnover.

While investors in general remain cautiously bullish on the Philippine stock market, retail investors continue to find gems in the struggling market. Most of them are tech-savvy young millennials who are inundated with money and trading online. Their sudden surge into the market is the reason many large brokerage houses have had to temporarily suspend new account openings or invest in additional bandwidth to cope with the surge in online transactions.

The increased involvement of retail investors is a good sign that the local stock market still offers plenty of opportunities for those willing to look beyond short-term gains. With better knowledge of the local market and growing maturity in investing, these investors have stimulated interest in listed stocks and enabled the economy to recover from the impact of the pandemic more quickly.

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

1. Potential to earn higher than bank deposit returns. Since the start of the pandemic last year, the Bangko Sentral ng Pilipinas (BSP) has reduced its policy rates and bank reserve requirements to stimulate lending and consumer spending. This has lowered interest rates to record highs, a trend that is expected to prevail throughout 2021. Cash-strapped people have therefore turned to investing in stocks instead of placing their funds in banks. which offer interest rates not exceeding 2% per annum. In comparison, stocks offer higher return potential (the average return of the Philippine stock market is 6.40% over the past 10 years).
2. No more access to listed shares. One of the positive aspects of the pandemic is the emergence of online stock trading due to digital transformation. This has led to more market participants and opened up income opportunities for more Filipinos, especially those who have lost their jobs or closed their stores due to the pandemic. With more brokerages online, it is now possible to build your wealth through stock trading, even without leaving the comfort of your own home. Investing in your favorite stocks only takes a few clicks on your smartphone or a few clicks on your keyboard.
3. Exciting IPOs and REITs from capital-hungry companies. With banks reaching their single borrower limit and becoming more risk averse, businesses have turned to the local stock exchange and fixed income market to raise capital to weather the pandemic. This has led to a proliferation of issues and business listings. This year, at least four real estate investment trusts (REITs) and three initial public offerings are expected to spark excitement among local stock exchange investors. This includes consumer food conglomerate World Nissin, which is expected to be the country’s largest IPO.
4. Ready for a recovery. Despite some setbacks, namely the continued rise in COVID-19 cases which has prompted the government to revert to more restrictive measures in Metro Manila and neighboring provinces, 2021 still promises to be a better year than 2020. for the PSEi. The deployment of the vaccine should lead to an improvement in investor sentiment. However, the transient nature of the crisis makes it difficult for stock market experts to predict when the recovery will actually take place.

Investment strategy

In this volatile environment, Edser Trinidad, head of investments and research at First Metro Asset Management Inc. (FAMI), advises investors to “buy the dips and seek the reopening of games that are trading at a discount.”

He cited the telecommunications and consumer staples sectors as the most resilient sectors during this pandemic. “Much of the workforce works from home, so the demand for bandwidth has increased, which has benefited the telecommunications industry. The lockdown also forced consumers to load their pantries, which favored the consumer staples sector, ”Trinidad said.

For Mark Angeles, head of research at First Metro Securities, cyclical sectors that can benefit from the economic recovery such as real estate, banks and some consumer-related companies have good profit potential. Once community quarantine restrictions are relaxed and more businesses are allowed to reopen, sectors related to restaurants, beer drinking, shopping malls, cars and property would also make good games, a. he added.

Both investment gurus agree that the current market situation presents a good opportunity to invest as the market has now limited further decline. Foreigners holding Philippine stocks are now at their lowest for 10 years, so the pressure to sell foreign funds has now eased.

“Average costs are strongly encouraged. Don’t invest in a swing! Invest in installments. Buy during market downturns, ”Trinidad said. He quoted legendary Omaha investor Warren Buffet, who said, “I’ll tell you how to get rich. Close the doors. Be fearful when others are greedy. Be greedy when others are afraid. “