In response to the sharp increase in the number of new coronavirus disease (COVID-19) cases, the Philippine government put the entire island of Luzon on a monthlong enhanced community quarantine beginning March 17.
Various local governments in Visayas and Mindanao, including Cebu and Davao, declared their own lockdowns.
Due to the various quarantine restrictions, including constraints on travel and business operations, the economy will be severely hurt. Note that Luzon accounts for around 70 percent of the country’s gross domestic product (GDP).
For 2020, Fitch Solutions cut its GDP growth forecast by two percentage points to 4 percent while Capital Economics is projecting no growth for the economy. Under a worst-case scenario, the National Economic and Development Authority (Neda) is forecasting the Philippines will fall into a recession, with the economy declining by 0.6 percent. Considering the economic weakness, most businesses will also be negatively affected.
Nevertheless, there are some business sectors that will be relatively resilient to the negative impact of the enhanced community quarantine, making stocks that belong to these sectors attractive buys when they get sold down together with the general market. Here are some of those sectors, which have companies listed in the Philippine
Stock Exchange (PSE):
Retailers of basic goods. Retailers that sell basic goods, such as supermarkets, groceries, convenience stores will be relatively resilient since they were allowed to stay open. A week before President Duterte imposed the isolation of Luzon, sales of these retailers shot up as Filipinos hoarded basic goods to prepare for a lockdown.
Listed companies with groceries and convenience stores include Puregold, Robinsons Retail Holdings and Metro Retail Stores Group.
Food manufacturers. Similar to retailers selling basic goods, food manufacturers have been allowed to operate. Filipinos also hoarded a lot of shelf-stable food items, such as canned goods, instant noodles, chips, coffee and milk, due to concerns of a possible food shortage, boosting sales of food manufacturers.
The government also moved to exempt companies engaged in the delivery of raw materials, food and food products from the lockdown following concerns they were already running low on inventory due to logistical issues.
Listed companies engaged in food manufacturing include Universal Robina and Century Pacific Food.
Telcos. Revenues of telcos will most likely stay resilient as people continue to use their data services to stay productive under a work from home arrangements or to just stay entertained.
Telcos listed in the PSE are PLDT and Globe.Power companies. True to their defensive nature, power companies will remain profitable as Filipinos continue to use electricity. However, sales volumes will be hurt as numerous offices, manufacturing and mall operations are closed.
Note that the Department of Energy already said that power demand in Luzon was down by 30 percent. Prices in the Wholesale Electricity Spot Market are also down significantly compared to the same period last year due to weaker electricity demand.
Listed power companies include Meralco, First Gen and Aboitiz Power.
Meanwhile, the following business sectors will be badly hurt by the pandemic: Travel and tourism (due to restricted travel); property (due to mall closures and absence of residential property sales); construction (no construction activity); restaurants, retailers and manufacturers of discretionary goods (due to closures of stores and manufacturing facilities); and banks (higher trading losses, credit costs, provisions and nonperforming loans, weaker demand for loans and fee income).
Although there are still sectors that remain resilient despite the ongoing crisis, one risk is if government fails to contain the number of COVID-19 cases. If this were to happen, the government may decide to extend the enhanced community quarantine for a much longer period.
Consumers and businesses would be hurt more significantly, and the negative impact would spill over to even the most resilient sectors.
For that reason, let us all do our responsibility to stay home and stay healthy so that we can minimize the spread of the virus. INQ