The Philippines: Market Update, First 100 Days
Since our last update in May 5 months ago, significant changes have occurred in the market environment and political landscape as a whole.
We admit that such a short term view, and one that focuses on market movements and prices, is actually speculative in nature rather than an investment operation. However, certain factors provide insight to the workings of the economy and might prove useful to the conservative investor.
A confluence of events, foreign and local have resulted in an exodus of funds led by foreign investors out of the country. By this we mean hot money in the capital markets.
Since the winning of President Rodrigo Duterte in May, the Philippine market has rallied back to the 8,000 level in raucous anticipation and optimism prompting us to write a mid-year market update cautioning investors from investing in inflated price levels.
Abroad, there was growing anxiety in anticipation of the US Federal Reserve raising interest rates, that will supposedly make US securities more attractive because of higher yields resulting in fund mangers pulling hot money from emerging markets back to the US.
On the local front, President Duterte throws a series of anti-American and European expletives after being criticized for his costly Anti-Drug war. The Philippine President has been criticized all over the world after more than 3,600 have been killed since the campaign started. The President has also been described as a "loose-canon" after cursing the US ambassador, the Pope, United Nations Secretary General Ban Ki-Moon and US President Obama. Lately, he has also caused a stir among Jewish people after making Hitler comments.
Since then, the Philippine President has landed cover after cover on international publications such as Time Magazine, Wall Street Journal, The Economist, New York Times, South China Morning Post, Le Monde etc.
Despite the Federal Reserve not raising interest rates September, foreign funds continued to dump Philippine shares making the Philippine Stock Exchange Index the worst performer among its Asian peers. Foreign funds have sold for more than 23 straight days, the longest outflow since 2007.
US-Philippine diplomatic relations have been strained after the President's series of anti-US rhetoric, and investors are beginning to doubt the future of the Philippine economy since the US is the Philippines' biggest trading partner and largest contributor of foreign aid. US investments amounted to 5 Billion pesos while China, the prefered partner of President Duterte, has investments of only 0.1 billion. We are investing more in China than China invests in us, said former DFA envoy to the US Ambassador Jose Cuisia. American soldiers have also begun to leave, as Mr. Duterte expressed suggestions to end the Philippine-American joint military exercises.
S&P Ratings have warned against increasing political instability and that further upgrades in the next two years are unlikely.
The Philippine Peso slid made its sharpest drop since the 2008 Financial Crisis, from P46 to P48 on the dollar in less than 2 months.
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