Philippine stocks have fallen the most in four years, and some experts are already anticipating a bear market. The last time the market hit these levels were in October 2020, during the early months of the epidemic, and in 2014, before the health crisis.
As concerns about the spread of the coronavirus intensified, the Philippine Stock Exchange Index dropped 3.9% to 6,909.84 during February 2020, bringing its three-day decline to 6.0%. Manny Cruz, a strategist with Papa Securities Corp. in Manila, predicts that the index might hit the 6,692.23 level in the following months, signifying a 20% decline from its 2019 high, as fears about the epidemic and its effect dampen hopes for higher economic and profits growth in 2020.
Some individuals are preparing for a bear market in the Philippine stock market as viral fears increase. Fears of a virus plague the Philippines even though there have been just three confirmed cases. The benchmark index is around 3% away from entering a bear market. With the decline, its year-to-date loss has risen to about 12 percent, the worst performance in the world behind Lebanon and Thailand, whose needs entered bear territory on ours.
President Rodrigo Duterte’s vocal assaults on some of the country’s most prominent corporate companies for contracts he said were detrimental to the public had already weighed on Philippine stocks. Nonetheless, before the epidemic, experts and investors had a favorable prognosis for 2020. Due to rapid economic and profit growth, the nation’s largest money managers, BDO Unibank Inc. and First Metro Investment, predicted a double-digit rise for the nation’s stock index this year. However, the coronavirus has altered the situation. “It is inconceivable that earnings won’t take a blow,” Cruz said, adding that a 10% increase in profits for Philippine firms this year may be “optimistic” given the epidemic’s impact on supply chains and consumer behavior. Earnings for the first quarter will see a significant decline that will continue for the following three months.
He anticipates that rallies would be short-lived since the risk-averse mindset has not yet reached its apex while worldwide infection rates continue to rise. “The next step will be discussions and worries of a recession,” he warned, once the impact of the virus on the impacted countries becomes obvious. He cautions that the impact will spread beyond the tourist and consumer industries. According to Cruz, a slowdown in manufacturing would have a “domino impact” on other businesses and the economy, reducing demand for loans and power. Therefore, he supports stocks of lenders and developers, such as the Bank of the Philippine Islands, Security Bank Corporation, Metropolitan Bank & Trust Company, and Ayala Land Inc. The Philippine Stock Exchange (PSE) entered a bear market on September 27 as its composite index (PSEi) dropped more than 239.47 points.
PSEi passed the bear market threshold when it reached 6,041 points, with the index touching a daily low of 5,962.17 before closing at 6,007. The PSEi concluded Friday’s trading session at 6,259.54 points. Concerns over growing inflation and the peso’s persistent weakening versus the U.S. dollar led to a two-year low in the stock market. This occurred days after the U.S. Federal Reserve increased interest rates by 0.75% to battle inflation when the peso reached a new low of P58.99 per dollar. Analysts from First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) predicted in a joint study that the Bangko Sentral ng Pilipinas (BSP) would boost base points by 25 to prevent the peso from falling farther behind the dollar. The partners anticipate another 25-basis-point (bp) hike before the end of the year if inflation maintains over 6.5%.
However, the peso may rise in November,2022 when overseas Filipino workers (OFWs) send remittances to their families, making imports cheaper for the nation. FMIC and UA&P expect the inflation rate to reach 6.7% in September or October.
So how should we invest during the pandemic or in new-normal, where the market is in the fall/bear market?
During a bear market, one investment strategy is to purchase stocks at decreased prices. However, it would be best if you were careful with this strategy. You should only purchase stocks from companies that have survived previous economic downturns.
Therefore, many seasoned investors recommend purchasing “toothpaste stocks.” These are only sometimes stocks of toothpaste-only manufacturers. These are shares of firms that create many products that will always be in demand, such as toothpaste and other essentials.
If you have correctly selected your investing vehicles, such as a 401(k) or index funds, you should continue making contributions. The first decline may reduce the total value of your 401(k) or investment fund. However, purchases made on the way down will be discounted. As prices climb in a bull market, you will emerge with a higher value on the other side of the market reversal.
Bonds and precious metals might be your buddies in the event of a downturn market. Historically, these assets have done well in imperfect markets, as stock prices and interest rates decline.
The asset allocation strategy has the most considerable impact on portfolio performance. This is particularly true over extended periods. An investor’s performance may be superior if they are mediocre at investment selection but excellent at tactical asset allocation, compared to technical and fundamental investors who may be outstanding at investment selection but have lousy timing with asset allocation.
Consider the following tactical asset allocation example: Assume you see conventional indicators of a mature bull market, such as increasing interest rates and high P/E ratios. New bear market conditions look imminent. Then, you may begin to lower your exposure to risky stock funds and overall stock allocation. You may also start developing your investments in bond and money market funds.
Let’s also suppose that your goal (or “typical”) asset allocation comprises 65% stock funds, 30% bond funds, and 5% cash/money market funds. Once you see high P/E ratios, new records for crucial market indexes, and increasing interest rates, you may rebalance your portfolio to 50% equities, 30% bonds, and 20% cash to decrease risk. All that remains are the actual sorts of mutual funds that may assist reduce your portfolio’s total market risk.
Consider that the average duration of a stock market bear market is one year. By the time analysts announce the start of a recession, the bear market might have been in a downward spiral for three or four months. If the length of the bear market downturn is less than typical, the worst may have already passed.
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