Why I’m still bullish about the stock market

Last September, I wrote why I thought the PSEi index would go above the 7,000 resistance level.

Now that the index is above the said level, I’d like to share why I think the market will continue to trade higher.

COVID-19 Delta-variant surge under control. From a peak of more than 20,000 in early September, the number of daily new cases has fallen to less than 2,000 today. The steady decline in the number of cases has prompted the government to loosen quarantine restrictions. Recall that on Nov. 5, the government placed Metro Manila on a more relaxed alert level 2, allowing more businesses to operate at higher capacity. According to The Department of Health, the National Capital Region (NCR) could be placed on alert level 1 if the number of daily new cases falls below 1,000. This is good news as all businesses will finally be allowed to reopen, benefiting the economy.

High vaccination rate. Although the Philippines’ vaccination rate is only 33 percent, 88 percent of the NCR’s target population is already fully vaccinated. The NCR’s high vaccination rate will help control the spread of the virus since the NCR is highly dense and accounts for 30 percent of the total number of COVID-19 cases in the country. The loosening of restrictions in the NCR will also have a significant impact on the economy given that this region accounts for 32 percent of GDP.

Availability of COVID-19 treatments. Two pharmaceutical companies—Merck and Pfizer —have developed antiviral drugs (Molnupiravir and Paxlovid) that significantly reduce the risk of hospitalizations and deaths from being infected with the COVID-19 virus. Also, compared to other treatments, these new medications are significantly cheaper and have the advantage of being easy to administer (orally).

At present, both Merck and Pfizer are seeking emergency use authorizations and are taking steps to make their drugs available globally at the soonest possible time. In fact, Merck’s Molnupiravir is now available in the Philippines through the compassionate special permit issued by the Food and Drug Administration.

The high vaccination rate and the availability of affordable and easy to administer treatments reduce the likelihood that the government would reimpose hard lockdowns in the future, benefiting the economy. Better than expected third quarter numbers. Despite the Delta variant surge, GDP growth and corporate earnings results both surprised positively in the third quarter as economists and analysts were too pessimistic. Third quarter GDP grew by 7.1 percent, much faster than the 4.9 percent consensus growth forecast.

Meanwhile, around 69 percent of listed companies covered by COL Financial delivered better than expected or in-line results during the July to September period. The better than expected third quarter numbers prompted economists and analysts to upgrade their forecasts as economic conditions and corporate earnings were not as bad as everyone thought.

Attractive valuations. Although the market has gone up the past month and a half, most stocks are still very cheap reflecting most investors’ cautiousness. For example, most blue-chip stocks that are part of the PSEi index are still trading below their 10-year historical average P/E ratios. In fact, many are also trading below their book values. These have prompted several companies to announce share buy back programs, while some shareholders are buying back shares of their own companies. INQ