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More reasons not to be too bearish

Because of the rising number of COVID-19 cases and the reimposition of tighter mobility restrictions, economists have been downgrading their GDP (gross domestic product) growth forecasts for the Philippines.

For example, last week, the ADB reduced its 2021 GDP growth forecast for the country to 4.5 percent from 6.5 percent.

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A few weeks ago, I discussed why I didn’t think the market would return to its 2020 low even with the significant increase in number of infections. Although I was wrong about the government not reimposing an enhanced community quarantine (ECQ), there are a few more reasons why I don’t think we should be too pessimistic about the economy and the stock market.

Availability of vaccines

Although the pace at which Filipinos are being inoculated is less than ideal, the availability of vaccines still means there is light at the end of the tunnel. However, the speed at which we can get there is dependent on us. Evidence shows that countries such as Israel, the United States and the United Kingdom, which are faster in vaccinating their people are now reopening their economies more aggressively as they are closer to the end of the tunnel.

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Global economic recovery

While the Philippines and other countries are suffering from a resurgence in the number of infections, there are many countries that have flattened the curve and are now enjoying faster economic growth. The Philippines should indirectly benefit from the faster growth of these economies through higher remittances.

Less strict ECQ, MECQ

Although the National Capital Region (NCR) and four neighboring provinces were placed under ECQ in March and are still under a modified enhanced community quarantine (MECQ), this year’s version is less strict compared to last year. For example, public transportation is still available. Moreover, restaurants are allowed to serve dine-in customers if they have outdoor space. Finally, the government allowed restaurants to start offering indoor dining, while personal care services such as barbers and parlors to start operating at 50 percent capacity in May, even though NCR plus is still under MECQ.

Business have adapted

Although the reimposition of stricter lockdown measures is not good for businesses, several listed companies we talked to said they didn’t expect to be as badly hurt this year. All businesses have digitalized and found creative ways to serve their customers. Companies also expressed confidence about staying afloat even with the challenges brought about by the tightening of restrictions. Note that due to uncertainty on how long the pandemic would last, listed companies raised cash and aggressively cut costs last year.

Because of their confidence in surviving the crisis, insiders of several listed companies are buying back their stock, especially now that valuations are depressed. In fact, some stocks even provide dividend yields that are higher than bond yields, making them more compelling buys. Companies with insider buying include Jollibee, Aboitiz Power, Aboitiz Equity Venture, PLDT and Globe.

Although the outlook of the economy and the stock market has deteriorated because of the resurgence of COVID-19 infections, I think we should guard ourselves against being too pessimistic. Otherwise, we will miss the opportunity to buy stocks now that prices are low. After all, buying low and selling high is what will allow us to earn attractive returns over the long term. INQ

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