Investing in the time of COVID-19: Finding opportunity in challenging times

BPI Asset Management and Trust Corporation (BPI AMTC), the asset management arm of the Bank of the Philippine Islands (BPI), says that while global economies and stock markets are reeling from the effects of the COVID-19 pandemic, the “red numbers on the board” can indicate that it is prime bargain hunting season for well-positioned investors.

“Investors are hedging their bets on which companies will bounce back quickly once the COVID-19 pandemic is over and when life returns with some semblance of normalcy, at which time they can then anticipate to enjoy the fruits of their liquidity,” says Sheila Marie Tan, BPI AMTC President.

Not everyone is equally positioned, however. On the other end of the investing spectrum, some may have just been starting and sank a significant chunk of their savings to buy a handful of once-rosy-looking shares only to see the value of their investments cut by half. If they do not need cash, they can shrug them off as paper losses and just sit tight until things get better. Unfortunately, to have enough money, some are forced to sell at a loss to weather out the COVID-19 storm.

To have enough cash on hand

This crisis is a lesson on proper investor risk profiling. The phrase “high risk, high reward” is often thrown around, but if things do head south, the magnitude of the risks is rarely discussed in-depth, so many newbies might find themselves floundering in tougher times. Thus, it is also the time to appreciate the importance of having seasoned fund managers and advisors.

“It may seem like a scary time to invest, but investors can be assured that professional asset managers like BPI AMTC do take events like this into account in making investment management decisions everyday. A simulation of the worst and best cases--and all those in between—is a regular asset management exercise. The objective is to map out and execute the best scenario under the circumstances for those who stay invested. The task at hand is to always take care of our investors’ financial well-being,” says Tan.

Stronger economies such as the United States, the United Kingdom, and Singapore have already announced stimulus and relief packages for affected industries to cushion the impact of COVID-19. They will likely be able to recover more quickly. However, people should still expect a frequent downward revision in global growth projections.

“COVID-19 used to be a China issue, but now it’s very much a global issue and markets have behaved to reflect this,” said Carlos Jalandoni, Head of Credit and Research for BPI AMTC.

Jalandoni anticipates that the Philippine GDP will accelerate later in the year. However, the combined impacts of the Taal Volcano eruption in January, coupled with COVID-19, will bring it down for the rest of the first half. However, he warns that if the virus continues unabated into the second quarter, it could effectively write off the rest of 2020.

Domestic fixed incomes remain favorable as the Bangko Sentral ng Pilipinas (BSP) works to manage inflation and proactively working on cutting policy rates and bank reserve ratios to stimulate continued growth in trying times.

Global equities on the other hand, are facing various challenges, forcing businesses to shut down during the quarantine period, according to Jalandoni, and the US market enters its correction stage, potentially wiping out the gains of the previous year. “As much as I’d like to encourage people to bottom-fish now and cost-average on global equities, I would advise people to avoid the dip for now and wait until we have a better picture in the weeks ahead,” he said.

Closer to home, economists have already made their adjustments on the economic growth, considering the impact of the Taal Volcano eruption earlier in the year and the ongoing COVID-19 crisis on domestic consumption.

Jalandoni believes that Domestic Fixed Income assets would prove to be a good bet for investors in such an environment. “We at BPI AMTC suspect the returns in the bond market will outperform the returns in local domestic equities,” he says.

The outlook for domestic equities is also uncertain. Apart from the strict quarantine measures that have temporarily halted the country’s economic engine, fund managers anticipated a fallout in the property sector, as the Philippine Offshore Gaming Operations (POGO) industry faces the risk of large-scale repatriations and closures from China.

“Our overall advice for investors is to adopt a cost-averaging approach to enhance portfolio returns in this situation. Be on the lookout for liquid fixed income assets and bond offers from the governments which come with a sovereign guarantee. A multi-currency investment portfolio would also be a good bet as a means of spreading your risk,” said Jalandoni.

BPI AMTC advises its clients to keep their eyes wide open for evolving risks while simultaneously looking for investment opportunities. Under these extraordinary times, it is prudent for investors to set aside a cash buffer to meet their basic expenses for a certain period and any unforeseen circumstances. For investors with investible funds, with multi-year investment horizons and the ability to tolerate market volatility, we advise to gradually adding positions as the opportunities arise. Finally, it bears to remember that the nature and magnitude of the crisis today is something mankind has not encountered in recent history. We remain hopeful that, over time, this crisis will also pass.

BPI AMTC is a stand-alone trust corporation and a wholly-owned subsidiary of the Bank of the Philippine Islands. It ended 2019 with Php730 billion in assets under management (AUM) and registered a record growth of 24% year-on-year and approximately 7% growth for the past five years.

April 2, 2020