After performing strongly in June, the market fell sharply in July, with the benchmark Philippine Stock Exchange index losing 9.2 percent last month.
The main reason for the stock market’s poor performance was the DOH’s (Department of Health) announcement that it found patients infected with the highly transmissible COVID-19 Delta variant. Given the threat of another surge in infections, which could lead to massive hospitalizations and deaths, the government placed Metro Manila under enhanced community quarantine (ECQ) or the strictest form of lockdown on Aug. 6 to 20. Although it is easier to be bearish given the negative implications of the Delta variant on businesses and the economy, there are more compelling reasons to stay bullish.
Improving vaccine rollout
Countries with high vaccination rates have not locked down despite the community spread of the Delta variant. For example, the United States and the United Kingdom which have fully vaccinated 50 percent and 57 percent of their populations, respectively (according to Bloomberg) remain fully open despite the community spread of the Delta variant. In fact, the UK government proceeded to declare July 19 as “freedom day,” lifting all COVID-19 restrictions, despite new infections hitting about 50,000 daily. Their reason why countries with high vaccination rates remain open is that even with rising number of cases, the number of deaths remain low. Most of those getting infected are unvaccinated, while vaccinated individuals who get infected only suffer mild symptoms.
This proves that vaccines work in preventing severe cases and deaths. As such, instead of closing their economies, the United States and the United Kingdom are taking steps to encourage more people to get vaccinated.
Although the Philippines is not yet in a position to keep restrictions loose since only 6.2 percent of Filipinos are fully vaccinated, the pace of vaccinations is picking up steam. As of July 27, the 7-day average daily vaccination rate was 365,000, up from about 200,000 a month ago.
Vaccine hesitancy has gone down as more Filipinos are rushing to get their jabs for fear of getting infected with the Delta variant. With the increasing supply of vaccines arriving in the country, the pace of vaccinations could speed up further and we could reach herd immunity earlier than initially expected.
Focus on NCR plus 8
Metro Manila’s vaccination rate is also much higher. As of July 5, 3.7 million or 26.4 percent of National Capital Region’s (NCR) population already received their first dose. As such, it is highly probable that more than a quarter of the region’s population will already be fully vaccinated by the end of August. NCR has a much smaller population of about 14 million. Coupled with the government’s decision to prioritize the vaccination of NCR plus 8, we think there is a high probability that Metro Manila could reach herd immunity by December. As such, the ECQ in August will most likely be the last time for the government to impose the strictest quarantine restriction in the NCR. This is good for the economy and the stock market since the NCR accounts for a third of the economy.
Quick recovery
Finally, the stock market could recover as quickly as it fell as evidenced by the performance of India’s stock market. Note that from a low of only 11,000 in February, the number of daily new cases in India jumped to a peak of more than 400,000 in early May.
As a result, India’s benchmark S&P BSE SENSEX (Bombay Stock Exchange Sensitive Index) index fell by up to 8.5 percent in the same period. However, as the number of cases dropped, the stock market started to recover. The SENSEX index is now at a new high for 2021 and is up by 10.3 percent year-to-date. Given the experience of other countries with the Delta variant and the Philippines’ improving pace of vaccination, we should not be too bearish even though the short-term picture looks bleak. In fact, the ongoing sell off in the stock market should be viewed as an opportunity to buy stocks at much lower prices as the market’s weak performance will most likely be short lived. INQ