Reasons to stay hopeful in 2022
The stock market ended 2021 on a sour note as the number of COVID-19 infections started to climb again. This raised the possibility of another lockdown early 2022, negatively affecting the outlook of the economy and the stock market.
Nevertheless, I remain hopeful that the stock market will perform better in 2022.
Although the number of cases could rise again, the health-care system might be less overwhelmed. This as more Filipinos are now vaccinated. As of last month, 44 percent of Filipinos were already fully vaccinated. Some who were vaccinated early last year are also getting their booster shots. The pace of vaccinations is also picking up as vaccine supply is no longer an issue.
While there is no guarantee that vaccinations will prevent someone from catching the virus, the risk of hospitalization and death is much lower. Moreover, the omicron variant, which is becoming the dominant strain globally, is known to cause less severe infections.
There is also a possibility that potential lockdowns in 2022 will be less strict. Given the significant impact of region-wide lockdowns on jobs and the economy, the government is now employing granular lockdowns and a more liberal alert level system.
Businesses also now know how to cope with the pandemic. This is evidenced by the country’s better-than- expected third quarter GDP growth and listed companies’ stronger than expected earnings results during the first nine months of 2021.
Even if the Philippines suffers from another surge in 2022, I am confident that listed companies will successfully weather the storm.
Finally, investors remain cautious. Only a few investors own stocks today given the Philippine economy’s slower recovery compared to other Asian countries. In fact, foreign ownership of Philippine stocks is now very low as foreign investors have been consistently selling their positions since the middle of 2019. Since not a lot of investors own stocks today, there aren’t a lot of stocks that can be sold even with bad news.
Also, because of investors’ cautiousness, valuations of most stocks are depressed. Today, a lot of stocks can be bought at single-digit earnings multiples. Some are even trading below their book values, or the cost of their assets less the value of debts in their balance sheet. This in my opinion is unwarranted given numerous signs that listed companies will survive the crisis. Consequently, many insiders are buying their stocks. Smart investors should follow their lead as sell-offs such as these are great opportunities to make profits over the long run.
Remember that “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
This quote from investor, banker, fund manager, and philanthropist John Templeton perfectly explains why I remain hopeful for 2022 despite the bad start to the new year.
