Despite its strong rebound from the lows in March when the number of COVID-19 cases started picking up in the country, the stock market is still not out of the woods as bleak second quarter earnings and other pandemic-related challenges continue to worry investors, according to BPI Securities.

The Philippine Stock Exchange index (PSEi) ended its six-day run on Friday, giving up 52.36 points or 0.8 percent to close at 6,465.13 as domestic investors locked up recent gains.

While the PSEi may overshoot 6,700 to 6,800 in the near term, BPI Securities president and chief executive Haj Narvaez said at a briefing yesterday that such upswing should be taken as an opportunity to lock up profits.

BPI Securities sees the PSEi ending the year at 6,200, way off its more bullish target of 8,600 at the beginning of the year.

“Over the next few months, companies are going to start reporting second quarter earnings around late July, and I see the possibility of correction once companies start reporting their second quarter results,” Narvaez said.

BPI Securities expects the full year earnings of 30 blue chip companies comprising the PSEi to contract by the high teens to as much as 20 percent, a revision from last month’s forecast of a 13-14 percent earnings drop.

“We were expecting some spike in provisions coming from the banks but I’d say the spike has been larger than expected,” Narvaez said. “We didn’t expect that provisions will rise two or three times [year-on-year]. We thought it would be spread out over 2020 or 2021,” he said.

A few days ago, the country’s largest lender BDO Unibank announced a hefty buffer of P20 billion for bad loans, on top of the P2.3 billion already set in the first quarter.

“In terms of [enhanced community quarantine], our initial expectation was there will be a resumption of normalcy by July. But, it seems we will operate at this 50-80 percent level for a lot of the venues for consumption over the next few months. So for that reason, it will probably warrant some [earnings forecast] downgrades as well,” Narvaez said.

Beyond the possibility of poor corporate earnings, Narvaez said higher bank provisioning, a potential spike in bad loan ratio and the likely closure of some stores and restaurants were other factors that could force analysts to downgrade earnings forecasts.

Without any clear grasp on these pandemic-related challenges, Narvaez said he would advise investors to take some caution.

“I think the optimistic assumption is that 2021 EPS (earnings per share) will approximate EPS levels in 2019 [prepandemic], but there are so many unknowns at the moment,” he said.

Given the strong momentum recently and the resurgence of foreign flows, he said the year-end consensus target of 6,800 may easily be breached, but he added that from hereon, downside risks remained.

Apart from fresh foreign flows, Narvaez noted that lots of big local institutional investors were sitting on cash that they were eager to deploy, thereby contributing to a near-term rally.

However, he said the market was now trading at valuations higher than the 15-year price to earnings average. In Wall Street, he noted that rich valuations could likewise spur profit taking.

BPI Securities is not ruling out the possibility of the PSEi sliding below 6,000 once the second quarter Philippines gross domestic product report is out.

“If the market goes down [5,200 to 5,500], it’s a good opportunity to come back,” he said.

On Friday, the PSEi was weighed down by the holding firm and services counters, which fell by over 1 percent. The industrial and property counters also slipped.

On the other hand, the financial counter gained 1.5 percent while the mining/oil counter added 5.52 percent.

Value turnover for the day amounted to P9.11 billion. Foreign investors continued their buying spree, resulting in a net foreign inflow of P476.37 million on Friday. —DORIS DUMLAO-ABADILLA

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