PHILIPPINE equities sank the most in four years, and some analysts are already watching out for a bear market.

As fears over the spreading coronavirus escalate, the Philippine Stock Exchange index lost 3.9% to 6,909.84 on Wednesday, taking its three-day slump to 6.8%. Manny Cruz, a strategist at Papa Securities Corp. in Manila, says the gauge could test the 6,692.23 level in the coming months, marking a 20% slide from its 2019 high, as concerns over the outbreak and its impact undermine expectations of stronger economic and earnings growth this year.

“It wouldn’t be far to enter a bear market with the continued uncertainty,” said Mr. Cruz, who correctly called a market rout in 2018, when earnings didn’t support valuations. “If more advanced economies are taking a hit, what more with the Philippines? While we have one of the fewest cases, this can quickly and dramatically change, just like what happened in South Korea.”

Virus fears are hounding the Philippines even as it has had only three cases so far. Now the nation’s benchmark gauge is about 3% away from entering a bear market. With Wednesday’s sell-off, its year-to-date loss has mounted to almost 12%, the world’s worst performance after Lebanon and Thailand, which entered bear territory on Monday.

Philippine shares were already hit by President Rodrigo R. Duterte’s verbal attacks on some of the nation’s biggest business groups for contracts he alleged were disadvantageous to the public. Still, before the outbreak, analysts and investors came into 2020 with an optimistic outlook. The nation’s biggest money manager, BDO Unibank, Inc., and First Metro Investment Corp. were among those that anticipated a double-digit gain for the nation’s equity index this year, thanks to accelerating economic and earnings growth. But with the coronavirus, things have changed.

“It’s unthinkable earnings won’t take a hit,” Mr. Cruz said, adding that 10% profit growth this year for Philippine companies could be“optimistic” because the outbreak has affected supply chains and consumer behavior. “There will be a big dent in first-quarter earnings that will extend into the next three months.”

He expects rallies to be short-lived as risk-off sentiment has yet to peak since infections are still growing globally. “The next stage from here will be talks and fears of a recession” once the virus hit becomes apparent on the economies affected, he said.

And the effect will extend beyond the tourism and consumer sectors, he warns. A slowdown in manufacturing would slow demand for loans and electricity, creating a “domino effect” on other industries and the economy, according to Mr. Cruz. That’s why he favors stocks where he sees a more muted impact, such as lenders and developers including Bank of the Philippine Islands, Security Bank Corp., Metropolitan Bank & Trust Co. and Ayala Land, Inc. — Bloomberg

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