Virus Threatens Property’s Dominance of Philippine Stock Market

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Photographer: Carlo Gabuco/Bloomberg

Having suffered the worst first-half performance in any year since 2008, a gauge of Philippine’s property stocks is faring worse than the nation’s benchmark index in 2020 after six years of outperformance.

The losses have also erased the valuation premium real estate shares typically command over the broader market — an occurrence that’s seen them stage a sharp rebound on more than one occasion in the past. But keeping history aside, things don’t look too promising for the sector that houses some of the country’s most-valued companies.

A more-than doubling of coronavirus cases in the Philippines in July risks sapping demand and inflicting more pain on real estate stocks. At the same time, a
plunge
in remittances by overseas Filipino workers and the
departure
of some Philippine offshore gaming operators — a key source of demand in recent years — are also clouding the industry’s outlook.

“The pandemic is a sword of Damocles hanging over all our heads,” said Gerard Abad, chief investment officer at AB Capital & Investment Corp., which manages the equivalent of $509 million in assets. “The risk is greater now and consumer demand is really weak.”

The PSE Property Index tumbled almost 27% in the first six months of the year — the most in such a period since 2008 — as residential and commercial demand sank once the virus outbreak forced people to stay at home and shift spending to essential goods.

The measure, which has a market cap of almost $36 billion, is down 30% year-to-date. That’s versus a 24% loss for the benchmark Philippines Stock Exchange Index. The MSCI AC Asia ex-Japan Real Estate Index is down about 19% this year.

“I’d prefer the consumer sector at this time, particularly manufacturers and retailers of essentials” said Robert Ramos, who helps manage 100 billion pesos ($2 billion) as head of the trust and investments group at Rizal Commercial Banking Corp. “The property sector will surely outperform once Covid disappears, but for now people are avoiding malls and they aren’t buying properties.”

‘Like An Earthquake’

Still, cheap valuations, an
accommodative
central bank policy and the government’s infrastructure push may prompt certain brave and long-term investors to start buying property stocks, some analysts say. Further, real estate companies are among those carrying the highest weightings in the benchmark, which makes any broad bet on Philippine equities also a bet on the sector.

Four core property firms carry a combined weighting of almost 22% in the 30-member PSEi gauge. The sector accounts for over 50% of the benchmark when taking into account diversified companies with real estate ventures.

“It’s like an earthquake hit the sector,” said Cristina Ulang, head of research at First Metro Investment Corp. in Manila. “But for the long term, it should be a top choice. One can’t ignore property to ride a market rebound — it’s big part of the index.”