Duterte Takes Philippine Stocks on Wild Ride in First 100 Days

  • Share index only decliner in Asia since president took office
  • Foreigners pull $531m from equities in 22-day run of outflows

Investors in Philippine shares are giving Rodrigo Duterte the worst reception for a new president in almost two decades after a tumultuous first 100 days.

Rodrigo Duterte

Photographer: Mark R. Cristino/EPA

The Philippine Stock Exchange Index has dropped 2.8 percent since the day before Duterte’s June 30 inauguration, the only decliner among major Asian gauges and trailing a 11 percent advance in the MSCI Emerging Markets Index. It’s the poorest showing for a new leader since stocks slumped 31 percent in 1998 in the first 14 weeks of the presidency of Joseph Estrada, the film actor turned politician who was impeached for corruption three years into his term.

Equities in Manila initially soared on Duterte’s election victory, with the benchmark gauge reaching a 15-month high in July, amid optimism he could accelerate one of the fastest economic growth rates in Asia. But the euphoria melted away as concern over high valuations was exacerbated by Duterte’s volatile response to critics of his deadly anti-drug campaign. Foreigners pulled $531 million from the market in a 22-day run of outflows.

“Duterte is unpredictable and anything that’s unpredictable is negative,” said Hans Goetti, the Dubai-based chief strategist for the Middle East and Asia at Banque Internationale à Luxembourg, which manages $40 billion. “The worst thing for the markets is they don’t know what they’re dealing with.”

The country’s stock index is still higher than where it was when Duterte was elected. It rallied 16 percent from the May 9 vote to this year’s high on July 21 before falling 6.5 percent. While foreigners pulled $316 million from Philippine shares since the end of July, they’ve bought a net $743 million in 2016. The gauge closed down 0.6 percent on Friday.

Duterte’s spokesmen, Ernesto Abella and Martin Andanar, didn’t respond to mobile-phone messages seeking comment from the president.

The Philippines’ economic growth, which has accelerated over the last five quarters and reached 7 percent in the three months through June, may have prevented a more marked decline in the share market. Duterte is pledging to cut personal income tax next year and wants to spend twice the amount spent on infrastructure in his six-year term than Aquino did in his. Investor concern over Duterte is “overdone,” Mark Mobius, executive chairman of the Templeton Emerging Markets Group, said last week.

“The market is just pricing in the risk and ignoring the fact that the government has a sound economic plan and a promising fiscal program on the table,” said Julian Tarrobago, a director at Maybank ATR Kim Eng Capital Partners Inc., which manages four of the 10 best performing Philippine funds. Tarrobago said he liked infrastructure stocks that will benefit from the government’s program such as Megawide Construction Corp. and EEI Corp.

Duterte hasn’t responded well to criticism of his anti-drug campaign, which has so far resulted in the deaths of more than 3,000 people. His threat to curse Barack Obama resulted in the U.S. president canceling a one-on-one meeting with the Philippine leader at a summit in Laos. Duterte accused the U.S., its second-largest trading partner and the fourth-biggest investor in the country last year, of “undermining” the Philippines and said he’ll visit China and Russia to pursue “new alliances” in trade.

Alleged drug users are rounded up during a police operation in Quezon City on Oct. 5.

Photographer: Mark R. Cristino/EPA

“The president’s comments and deteriorating relationship with the U.S. is going to have economic consequences for the Philippines,” said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages more than $110 billion. “Investors are worried that there’s going to be economic fallout.” 

Gambling, Mining

The former mayor of Davao City has aggressively gone after online gambling companies, with shares in PhilWeb Corp. plunging 67 percent since the end of June as Duterte said its owner, Roberto Ongpin, had an undue influence on the government.

Environment Secretary Gina Lopez has targeted miners, ordering them to comply with environmental rules or shut down. Chamber of Mines President Philip Romualdez has said that $25 billion of investments in the country, the world’s biggest supplier of nickel ore, are on hold and three quarters of a million people could lose their jobs. Marcventures Holdings Inc. tumbled 17 percent on Sept. 27 after the nickel miner was recommended for suspension.

S&P Global Ratings warned last month of “rising uncertainties surrounding the stability, predictability, and accountability" of Duterte’s government as it affirmed the country’s BBB rating, the second-lowest investment grade. The American Chamber of Commerce said Sept. 8 that the drug killings are harming the country’s image and some investors are concerned the rule of law is being eroded.

The performance of the stock market from the June 29 close compares with a 26 percent increase when Benigno Aquino took power in June 2010 and a 16 percent advance in 2004 when Gloria Macapagal Arroyo won her own six-year term. The peso weakened 2.6 percent since the end of June, the worst performance in Asia after Malaysia’s ringgit.

Philippine shares have long been some of the most expensive in Asia and their decline from late July came as the gauge’s 12-month price-to-earnings ratio rose to 19.6. It’s since dropped to 18, still higher than 15.6 in Indonesia and 14.5 in Thailand.

“From a fundamental perspective, Philippine stocks have been very pricey,” said Robert Ramos, chief investment officer at Union Bank of the Philippines in Manila. “And while many believe that the long-term story is still there, investors have taken a wait and see stance as they try to assess the direction Duterte’s government will take.”

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