Why the Ateneo paper estimating 3 million undetected COVID-19 cases in the Philippines is flawed

Over the past couple of days, a working paper from Jan Fredrick Cruz from the Ateneo center for Economic Research and Development has been getting much media attention for estimating that the Philippines may have had close to 3 million undetected COVID-19 cases in the 2nd quarter alone. The paper, titled An Empirical Argument for Mass Testing: Crude Estimates of Unreported COVID19 Cases in the Philippines vis-Ã -vis Others in the ASEAN-5 can be downloaded here.

Essentially, the paper uses Singapore’s case fatality rate (CFR) to re-compute the fatality rate of other ASEAN countries. The main issue here is that Singapore’s CFR is really low and is obviously an outlier in comparison to CFRs of other countries. Based on the latest mortality data compiled by John Hopkins University, Singapore currently has the lowest CFR. JHU lists it at 0.0% since they only go up to the first decimal place, but Singapore’s current CFR is about 0.05%. This is now slightly lower than its CFR in Q2. The median CFR among around 160 countries is currently about 2.2%, while the global CFR is around 3.5%. The Philippines’ CFR is currently 1.6%.

So what the Ateneo paper did is assume that Singapore’s best-in-the-world CFR is also applicable to other ASEAN countries, to come up with an estimate of undetected cases.

The first problem with this is that Singapore’s CFR is really absurdly low. If you apply Singapore’s CFR to a country like Germany (4% CFR) which currently has about 230,000 cases, you’ll come up with a total of about 18.4 million cases. Note that Germany is one of the countries considered to have performed well in addressing the pandemic.

The second problem is that the CFR is subject to change as testing capacity improves and more asymptomatic/mild cases are detected. The Philippines’ current CFR is half of its CFR in Q2. If we now use the paper’s method of applying Singapore’s CFR to the Philippines’ current CFR, the total estimated cases would then be about 2.4 million cases, compared to 178,000 cases as of August 20, 2020. So the paper estimated 2.8 million cases in Q2 alone, but applying the same method now would yield a lower estimate. That doesn’t make sense at all and shows the crude methodology’s lack of self-consistency. It’s such a simple sanity check that the author should have done before pushing out this paper.

The author uses the paper’s findings to conclude that the Philippines should improve its testing and tracing strategy. I have no objections there, but at least try to make arguments that make sense. Insisting that we should expect Singapore’s CFR to be applicable to the Philippines may lull us into thinking that COVID-19 is not that dangerous, if, after all, we did indeed “miss” 3 million cases and only have fewer than 3,000 deaths.

Thoughts on the Philippine COVID-19 situation

(Note: This is not a personal finance-related post. I’ll be back to regular programming shortly.)

It’s been quite a while since my last post on March 1, 2020. At that time, there were only 91,000 confirmed COVID-19 cases worldwide and only 3 in the Philippines. Only China and certain parts of Italy had imposed lockdowns. Since then, the pandemic has exploded worldwide with millions of cases, several hundreds of thousands dead, and quite a few economies in recession.

The Philippines has been in various levels of lockdown since the middle of March. During this time, the Filipino penchant for coming up with an alphabet soup of initialisms is in full display: ECQ, GCQ, MGCQ, MCQ, LSI, APOR. Compared to some of its Asian neighbors, the Philippines has not fared well in terms of the number of cases and fatalities.

Each day, typically around 4 p.m., the Philippine Department of Health (DOH) releases new confirmed numbers for the day. The DOH later releases what they call a data drop consisting of data files containing case, testing, and medical facility capacity information for the day. I’ve decided to see for myself what the DOH discloses in these data files.

The numbers so far as of August 18, 2020.

DOH Confirmed COVID-19 Figures as of 08/18/2020
New cases by date of confirmation

Daily announced numbers are just the cases the DOH has confirmed.

I think this has been made clear several weeks ago when the DOH started to distinguish between “fresh” and “late” cases. They have since stopped making this distinction in more recent announcements, but it is still the case that for each new batch of numbers announced everyday, some cases date back to several days or weeks ago. For the 4,836 new cases confirmed on August 18, the chart below shows the distribution of onset dates. Most cases were from the first half of August, and some from July. (Note that in the DOH data files, not all cases have recorded onset dates. In these cases, the date of specimen collection is used as proxy).

Onset date of newly confirmed cases on 08/18/2020

Obviously, the number of new cases announced each day is a function of how efficient the DOH is able to confirm new cases. There is still a significant backlog of cases that are pending validation as I’ll show below. So, if one day, the DOH announces 10,000 new cases — which would be a new record — it’s not necessarily time to panic even though media outlets will find it hard to resist to sensationalize this number. It’s also not necessarily time to declare victory if, one day, the DOH suddenly announces only 500 new cases after several days of >3000 daily cases. To repeat, the new daily confirmed case numbers do not necessarily reflect the growth or decline of the pandemic.

A better, but still incomplete, way of looking at the epidemic curve is by plotting the cases by date of onset as shown below. While the plot based on confirmation date shows a couple of days with 6000+ new cases, we can see from the plot below that, based on the date of onset, we haven’t seen a 5000+ day. That might change later on as pending cases are validated.

Onset date of all cases confirmed as of 08/18/2020

The same is true with the the number of deaths. On July 12, 2020 the DOH announced 162 confirmed deaths. If we look at the plot of deaths by date shown below, we haven’t had a day with 50+ deaths. This does not necessarily mean that we’re doing well. I think it’s just important to put the numbers in context.

Date of death for confirmed deaths as of 08/18/2020

While testing capacity has increased, positivity rate is still above 10%.

Testing totals and positivity rate as of 08/18/2020

The DOH daily data files include the number of tests performed and number of positive test results each day from the different accredited testing centers around the country. While the testing capacity has definitely improved, the positivity rate has remained above 10% for the past month or so.

There is still a significant number of positive test results that are pending validation.

Comparison of cumulative confirmed cases and cumulative positive tests

The plot above shows that there are still around 40,000 positive tests pending validation. The good news is that the backlog has stopped increasing around late July. This could mean that the DOH has ramped up its validation rate or the rate of new positive test results have plateaued or slowed down.

If we look closer at the plot of daily positive test results below, we can see that the number of new positive results have indeed somewhat plateaued around late July. I’m hoping that this could be a sign that the spread is slowing down, but I still would like to see the positivity rate go down.

Daily positive tests as reported by testing labs as of 08/18/2020

Age Distribution of Cases and Deaths

The distribution of confirmed cases over the past months have stayed almost the same, with the bulk of cases in the 25 to 34 age bracket.

As for deaths, the distribution definitely skews towards older age brackets. Without the proper context (e.g. comorbidity), it is concerning though that we have at least 30 confirmed deaths in the 0-4 range. The US with more than 5 million cases has recorded only 26 deaths in the 0-4 range as of August 8, 2020.

What about excess mortality?

The DOH has so far confirmed a total of 2,687 COVID-19 deaths since the pandemic began. While every death is of course unfortunate, how does this number compare to the typical all-cause death rates in the Philippines. Tracking all-cause deaths may give us an idea on whether the total number of COVID-19 deaths so far makes sense against the overall death statistics in the country. (See this Financial Times link for how they track this statistic for other countries.) The Philippine Statistics Agency recently published preliminary death statistics for the first half of 2020. So far, recorded deaths in the months of March to May are tracking below the average deaths per month from previous years. The June figure is still well below the average and this may be due to delayed reporting. If the trend holds, it would appear that deaths from COVID-19 have not yet made a significant impact on overall mortality for 2020. Obviously, it is still too early to make any conclusion based on these preliminary numbers.

Source: Philippine Statistics Agency

Final thoughts

  • We’re still probably not yet at the appropriate testing levels to be able to find cases quickly enough and to be able to lower the positivity rate.
  • The DOH has to improve their validation/confirmation rate to quickly reduce the cases that are pending validation.
  • Recent trends in daily new positive test numbers are encouraging but do not yet show a clear downtrend.
  • The total deaths from COVID-19 has not yet caused a spike above the average death rates based on preliminary 2020 numbers.

US ETFs: Direct Investment vs Feeder Funds

An investor from the Philippines who wants to put money in U.S. ETFs can either choose from a limited menu of locally available feeder funds with U.S. ETF target funds, or directly open an international brokerage account and buy ETF shares directly. Down below is a simple calculator to determine whether it would be worth going through the hassle of opening an international brokerage account to directly invest in U.S. ETFs.

Continue reading US ETFs: Direct Investment vs Feeder Funds

Can non-US residents trade US options?

The short answer


What are options?

First off, this post is not the right place to learn all about options. Options trading is not for everyone as options are riskier than stocks. Nevertheless, here are the basics: A call option is a contract that allows you to buy 100 shares of stock of a company at a particular strike price. For example, Ford Motor Company shares are currently prices at $8.10. A call option for Ford with a strike price of $10 and expiration date of September 18, 2020 can be purchased for a premium of $0.13 (x 100 shares = $13). The break-even price is the sum of the strike price and the premium:$10.13. Since Ford’s current price is below the option’s strike price, the option is said to be out-ofthe-money (OTM). If Ford’s stock price goes above the $10 strike price, then the option is said to be in-the-money (ITM).

The option premium can move up and down with the price of the stock, as it goes closer or farther to being ITM. Option premiums are also generally higher for volatile stocks. You can sell the option before the expiration date at a profit or loss. If you hold the option until the expiration date and it is OTM, then the option will simply expire and you lose the premium you paid. If you hold the option until the expiration date and it is ITM, then may execute the option and actually buy 100 shares of ford for $10 each (x100 = $1,000). If, for example, Ford’s price at expiration $11 and you execute the call option and sell the stocks right away, then your total profit is $100-$13 (premium) = $87 or a more than 600% gain. If you used the same $13 to buy 1.60 shares of Ford (at $8.10 each) assuming fractional shares area allowed), then you only gain $4.60 if Ford’s price increased to $11.

This illustrates the leveraged nature of options: for the same amount of money, you can potentially have much higher gains buying options than buying stocks. The counterpoint is you can LOSE the entire premium if the bet does not go your way (e.g. the option expires OTM). On the other hand, if you simply bought Ford stock, then at least you can continue holding those shares until it hits your target.

The second type of option is the put option. This is a contract that allows you to sell 100 shares of stock of a company at a particular strike price. Many of the things I discussed about call options apply except in the “opposite” manner. ITM put option means share price is below the strike price. OTM option means share price is above the strike price. The break-even price is the strike price minus the premium paid. You can buy put options if you are betting that the stock price will go down. You can also use put options to hedge against a downward move in the stocks that you own.

How to get started with options trading

When opening a brokerage account with the likes of Charles Schwab or Interactive Brokers, you are typically only given stock trading privileges by default. During the application process, you would have to explicitly ask for options trading capabilities to be enabled in your account. Since options are generally riskier than stocks and offer a variety of trading strategies with increasing levels of risk, brokers typically want to make sure that you are aware of such risks involved.

When I initially applied for my Charles Schwab account, I indicated that I wanted to have options trading enabled in my account. They then sent me an email asking me to call about my options trading application. I was too lazy to make that call so when my brokerage account was finally approved, options trading was not enabled. At that time, I still had my Robinhood account where I can trade options as well. A few months later, I again lodged my application for options trading with Charles Schwab. In the application, they ask for your options trading knowledge level (None, Limited, Good, Extensive), experience (how many years), number of trades per year, and amount per transaction.

Schwab then again asked me to call them. When I did, they asked me about my income, and what trading strategies I am pursuing. They also asked what amount of my brokerage account I will use to trade options, and how I would react if I lose that entire amount. Schwab has four option approval levels, and I applied for and was approved for Level 1.

How much does it cost to trade options?

While Schwab does not charge any commission to buy and sell stocks, it does charge $0.65 per option contract. This fee applies for both buying and selling. For example, that Ford call option with $0.13 premium describe above, will actually cost $13.65 (100*$0.13 + $0.65) to purchase.

Using my Schwab card at 7-Eleven (7-11) Japan ATMs

Last time I traveled to Japan in March 2019, I use my Capital One 360 Mastercard ATM card to withdraw cash from 7-11 ATMs. Capital One 360 does not charge any foreign transaction fees and at at that time 7-11 ATMs did not charge any ATM fee. In addition to my Capital One 360 card, I now have a Charles Schwab Visa ATM card which promises to refund ATM fees. Recently, I’ve read reports that 7-11 ATMs have started charging fees to international ATM card holders. I returned to Japan last week and found out out for myself if the reports are correct.

Continue reading Using my Schwab card at 7-Eleven (7-11) Japan ATMs

PSEi index funds vs the PSEi Total Return Index

In comparing returns from PSEi index funds in the Philippines, the right benchmark to use is the PSEi Total Return Index (PSEi TRI). This is particularly true considering none of the PSEi index funds distribute cash dividends. The PSEi TRI accounts for cumulative price returns and cumulative return sof dividends reinvested back into the index, while the PSEi only accounts for price returns. The PSEi TRI was only introduced in 2019, but its history was back-calculated to 2007. Since it’s pretty new, I haven’t found any freely available resource for the PSEi TRI history. I recently came across this article, And the best equity fund is …, from the Philippine Daily Inquirer. This article was written by someone who is selling financial planning products, so not surprisingly, the article did not actually identify any particular index fund. Fortunately, it did provide some numbers for the PSEi TRI.

Continue reading PSEi index funds vs the PSEi Total Return Index

More questions on Philippine taxation of foreign capital gains and dividends

I’ve written a few posts on how the Philippines taxes income from capital gains and dividends from foreign stocks:

It was confusing at first but I have since come to the conclusion that since there is no law or BIR ruling that specifically provides for fixed tax rates or exempts foreign capital gains and dividends, they fall into the catch-all category of “non-business/non-profession” income that will be taxed at ordinary graduated income rates. Still, I have few more questions.

Continue reading More questions on Philippine taxation of foreign capital gains and dividends

Home Biased: A Case for More Indexing

This interesting article from Victor Haghani and James White suggests that, given some initial assumptions about investor wealth distribution, the dominant size of the U.S. market (50%) relative to the world market coupled with U.S. home-country bias (80% invested in domestic equities) actually gives rise to higher U.S. market valuations, and lower expected long-term returns. This is the case in spite of the fact that smaller market investors exhibit relatively higher home-country bias (50% invested in domestic equities in markets 5% the size of the world market cap).

How would this apply to countries with extreme home-country bias like the Philippines? If we have a total world market worth $100, with a 50% US market with 80% home-country bias, 10 smaller 4.9% markets with 50% home bias, and a 1% Philippine market with 99% home bias, the calculation would yield that there would be an excess $0.45 demand in a Philippine market that would otherwise have been worth only $1. It would appear that extreme home-country bias in such a small market like the Philippines also has the effect of pushing market valuations higher due to increased demand.

Read Global Impact of Investor Home Country Bias for more discussion on Haghani and White’s article.

Best international broker for Philippine residents: Charles Schwab vs Interactive Brokers

For Philippine residents who want to venture into the international stock market, there are really just a few legitimate options available. For this matter, I don’t consider the likes of eToro and Abra as legitimate platforms for the serious investor or trader. The top three choices for Philippine residents are Charles Schwab, TD Ameritrade, and Interactive Brokers (IBKR). Since Charles Schwab is acquiring TD Ameritrade, I’m only covering Schwab and IBKR. So which one is better for Philippine residents?

(Note that if you’re a Philippine resident and also an American citizen, many of the issues raised here are not applicable to you.)

Continue reading Best international broker for Philippine residents: Charles Schwab vs Interactive Brokers

Is BPI Invest Global Equity Fund-of-Funds UITF really outperforming its MSCI World benchmark?

In my post on avoiding home-country bias in the Philippines, I mentioned the BPI Invest Global Equity Fund-of-Funds UITF (BPIGLBL:PM) as one of the options in diversifying into international stocks. This fund aims to “provide excess return” over its benchmark, the MSCI World Index, which covers international developed markets.

In June 2019, a number of news articles came out saying that the BPI fund has exceeded $100M in assets, and is now the largest of its kind in the Philippines:

These articles also mention BPI’s claims that its fund has consistently outperformed the benchmark MSCI World Index: “It overtook the returns registered by MSCI World Index – comprised of large and mid-cap equities of 23 developed markets such as United States of America, United Kingdom, Japan, Hong Kong, and Singapore – by 0.94% (year-to-date)to 2.58% (two-years) as of the first quarter of 2019.” This is a pretty bold and impressive claim. But is it true?

Continue reading Is BPI Invest Global Equity Fund-of-Funds UITF really outperforming its MSCI World benchmark?