It’s been a tough year for the stock market this last 12 months. The plumetting index over the past few years reflects the lack of confidence many investors feel towards the market. After the BW scandal, the Erap impeachment, and unyielding terrorist threats, “bearish” sentiment has continually plagued the Philippine stock market. Nonetheless, it is worthwhile to focus on how the Philippines is doing compared to the rest of the world, where the Phisix is heading, the economy’s strengths, and stock picks to follow even during this bearish season.

Where are we now?
Equity markets have generally been bearish with year-to-date returns (in both US terms and local currency) hovering in negative territory. The US market plunged due to a myriad of reasons which include its economic recession, the spate of corporate accounting scandals, and tensions in the Middle East. While the Dow Jones Industrial Average (DJIA) limps to its 5-year low, Asian equity markets led by Thailand and Indonesia (except for Taiwan) have so far outperformed the US market. The Philippines is a distant third best equity performer next to Thailand and Indonesia, but it must be noted that apart from the top two, the rest of the markets are in negative territories.

Where is the Phisix Heading?
From an index of 1,168 at the onset of 2002, the Phisix made a remarkable run of 26% to establish a 2002 peak of 1,470 back in February. In fact, it was at one point the best performing equity market in the world. It failed to sustain the run and slowly descended to almost reach its 2002 low of 1,082. The local market is currently at 1047.22 (as of Nov 29) and the main question is where is the Phisix heading in the next six to twelve months? Will it move up to reach the 2002 high of 1,470 or fall to the 2001 low of 990?

The Economy’s Strengths
Inflation Rate. The country’s inflation rate was threatend by a variety of factors, chief among which was the turbulent upswing in global oil prices propelled by US-Iraq tensions. For the time being, however, oil prices have levelled off given the release of the UN Security Council ruling on Iraq and on-going arms inspection. Arguably, any spikes in the general level of prices will be subdued given the almost historic low of inflation rates. Asset prices such as real estate and durable goods are still soft signifying that we are still in a seemingly “deflationary” environment.

Private Consumption. The country’s strong consumption base will continue to be its saving grace as private consumption accounts for 74% of the country’s GDP. However, there should be concerted effort to address the high unemployment rate of 11.4% as this has been dampening consumer confidence. The domestic economy must also build up to shield itself from the possible external shocks such as the Middle East tensions and the slowdown of US economic recovery.

Leading the Pack
Despite the pessimism felt by many investors and analysts, the economy is still running and in moderate condition. In terms of corporate earnings, results have been mixed so far with only a handful of companies exceeding market expectations. Consumer companies exhibited resiliency and better earnings. Utility companies suffered massive earnings contractions while telecommunications companies posted robust profits despite deceleration of subscriber take-up. Real estate companies have posted lackluster sales despite the low interest rate environment. On the other hand, banks have seen mixed earnings as a result of low interest rates and single digit loan growth that hurt profits.

Even during bear season, these corporations exhibited the most amount of resiliency for 2002 and continue to have good prospects. Indeed, even as some continue to be pessimistic about the local economy, it is imperative that investors do not lose sight of worthwhile opportunities.