By Ian Sayson
Monday vote in the Philippines will end the uncertainty of who will succeed President Benigno Aquino III, but it may not bring calm to a market coming off its worst week since January.
“The market will be on a very high level of elevated volatility,” Bede Lovell Gomez, vice president and trust officer of First Metro Investment Corp., said in Manila. “The next questions that markets would like addressed are what are your plans, issues you want addressed and the people who will run the government. That’s the next overhang.”
Philippine shares have tumbled more than 5 percent from a March high when the Southeast Asian nation entered a bull market, erasing most of its gains for 2016. A controversial city mayor with little economic experience who promised a “bloody war” on crime has led the election race, rattling investors concerned about his ability to steer an economy that’s recorded an average six-year growth of 6.2 percent, the fastest since the 1970s.
International investors unloaded $34 million from local stocks in April, after adding $204 million to their holdings in March, data compiled by Bloomberg show. The Philippine Stock Exchange Index sank 2.3 percent last week while a measure of 10-day volatility reached a one-month high. The stock gauge slid below its 200-day moving average for the first time since August on Thursday.
Philippine sovereign bonds stalled in May, after rallying 6 percent in the last five months, while the peso has weakened more than 2 percent in the past three weeks.
“It’s important that the next administration defines the programs clearly in order to reduce or make the public more realistic with their expectations,” said Fritz Ocampo, chief investment officer of BDO Unibank Inc., the nation’s largest money manager with $20 billion in assets under management. “A lot of hype and promises were made during the campaign.” Ocampo says he is holding cash and has been picking up shares which have dropped excessively.
Polling stations opened at 6 a.m. local time and are due to close at 5 p.m. Andres Bautista, chairman of the Commission on Elections, told GMA News it will extend hours in some areas where delays were reported for various reasons, including malfunctioning voting machines. The commission expects turnout this year to exceed the 75 percent recorded in 2010. There are 54.4 million registered voters, with 45 percent of those in the 18-to-34-age bracket.
Rodrigo Duterte has been mayor of Davao City on the southern island of Mindanao for two decades, where his strongman swagger and endorsement of the execution of criminals earned him the nicknames “Duterte Harry” and “The Punisher.” He’s been likened to US presidential candidate Donald Trump, using populist rhetoric to reach Filipinos who feel the mainstream political parties are out of touch.
If Duterte wins, “we will have to wait until we hear what he wants to do, how he will do it and who will be the people in the cabinet,” said Gomez. “What has been heard by the market so far are all motherhood statements. Markets would like to know something more detailed.”
Opinion Polls
Duterte has a commanding lead among five contenders that include Mar Roxas, a former interior secretary who lost a vice presidential bid as Aquino’s running mate in 2010. Roxas is favored by business and investors to be the next head of state as he is expected to continue the programs and reforms of government. The latest survey by Pulse Asia put his rating at 22 percent, behind Duterte’s 33 percent.
Grace Poe, who is serving the first half of her six-year term as senator and also favored by business groups to continue Aquino’s legacy, is at third with a 21 percent rating. Vice President Jejomar Binay, who helped build the Makati financial district as mayor, is at fourth with 17 percent.
Should Duterte or Binay emerge as the victor, “we could see the stock index extending a fall below 7,000 and test its support at 6,800,” said John Padilla, who helps manage the equivalent of about $7.84 billion at Metropolitan Bank & Trust Co. Stocks should rebound at 6,800 since the nation’s economic fundamentals and growth prospects remain intact. A victory by either Roxas or Poe could fuel a “euphoria” rally to 7,600 in three months, he said.
Tall Order
Aquino has delivered one of the fastest economic growth rates in the world and created almost four million jobs in his six-year term as he boosted government spending to a record. Analysts’ forecasts indicate real GDP will maintain its annual growth rate of 5.8 percent to 5.9 percent, with consumer prices increasing moderately over the next three years.
The Philippine Stock Exchange measure has rallied an average of 26 percent in the 12 months after electing a new president in each of the past four presidential polls that the nation has held since the ousting of dictator Ferdinand Marcos in 1986, according to data compiled by Bloomberg.
Investors said it may be a tall order to duplicate those historical returns as stocks remain among the most expensive in Asia and there are scant details on economic plans. Concerns of higher US interest rates and a sharp slowdown in China may also cap any rallies. Philippine equities are trading at 17 times the 12-month projected earnings, compared with 12.4 for the MSCI Asia Pacific Index.
“It may be difficult for the market to repeat its historical performance,” said Gomez. “Valuations are high and vulnerable to external and domestic shocks.”