‘Duterte victory renews investor confidence’

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But analysts credit Fed move to delay rate hike

The incoming Department of Finance (DOF) said the victory of President-elect Rodrigo Duterte in the May 9 elections has sparked renewed investor confidence in the economy, but analysts downplayed the claim, suggesting that broader economic factors, particularly the almost certain delay of an interest rate hike by the US Fed, are likely responsible for the optimism.

Incoming Finance spokesperson Paola Alvarez said various equities analysts shared her view that “higher net foreign buying in the local bourse over the May 1 to June 10 period is testament to resurgent investor confidence in the Philippines since the peaceful presidential race that was won by Davao City Mayor Rodrigo Duterte.”

Several analysts opposed this view, however, saying that the recent rally in the local bourse was at least partly the result of the US Fed’s reluctance to raise interest rates and external developments, and cannot be traced to domestic factors alone.


Citing Philippine Stock Exchange (PSE) data to underscore her point, Alvarez said seasoned stock market players have attributed this positive development to the election of Duterte, and his eight-point economic agenda for inclusive growth.

Alvarez noted that PSE data showed that net foreign buying surpassed P20 billion over the May 1 to June 10 period, up P3.59 billion or 22 percent from P16.54 billion in the same period last year.

She said foreign investors bought more local stocks than the amount they sold last May and in the first eight trading days of June following the peaceful conclusion of Philippine presidential elections.

Data from the PSE showed net foreign buying amounted to P14.15 billion in May and P5.98 billion from June 1 to June 10, although some adjustments may still be made for June figures.

Alvarez said Justino Calaycay Jr. of A&A Securities agreed her view by stating, “this year is definitely better than last year when both months registered net foreign selling — P8.98 billion in May and P7.56 billion from June 1 to June 10, 2015.”

Calaycay also noted that optimism is coming on the heels of Duterte’s “stated tack of keeping the Aquino economic policies and programs in place. Thus economics-wise, there is something which investors and market watchers, businessmen, etc. can hinge their forecasts on.”

Alvarez pointed out that while there are various reasons for the increase in net foreign buying, it cannot be denied that the election of a new President with a steadfast character and the appointment of a learned secretary of finance are contributing factors.

The incoming Finance spokesperson also mentioned that IGC Securities chairman Ismael Cruz said, “there are a number of reasons for the return of foreign buying such as, no United States Federal Reserve rate hike, first quarter gross domestic product growth of 6.9 percent, and MSCI upgrade for the Philippines, but the recent peaceful elections, the election of a new president, the favorable perception of cabinet appointments, and the 8-point economic plan announced by the presumptive Finance Secretary–are all positive factors coming together towards investor confidence.”

AB Capital Securities, Inc. equity research analyst Victor Felix said the biggest source of confidence is the conduct of a clean, honest and efficient election since the conclusion of the election provided clarity on the direction of the Philippines, she added.

However, Felix noted that investors are still in a wait-and-see stance since Duterte’s cabinet appointees have yet to take office and thus still have no power to fulfill his campaign promises.

Nevertheless, Alvarez stressed, “The incoming administration is confident in the optimism shown by foreign investors in the growth of the Philippine market.”

“We hope this investor trust and confidence in the stability of our market continues with the policies of the incoming Secretary of Finance–policies which we assure will always be sound,” Alvarez said.

‘Fallacious pronouncements’
Providing opposing views to Alvarez’s claims were analysts from the Bank of the Philippine Islands (BPI) and Sun Life Financial.

“Pronouncements by Ms. Alvarez are obviously fallacious as foreign buying has been in the net positive for the region, save for Japan,” said BPI associate economist Nicholas Antonio Mapa.

Mapa traced the positive net foreign buying to the risk-on sentiment generated by fading expectations for a Fed rate hike in June or July.

“The ultra-weak NFP [non-farm payroll] numbers in the US helped seal the deal for the Fed delay and thus risk assets rallied across the region,” he explained.

Mapa pointed out the MSCI rebalance, which gave higher allocation to certain stocks, also drove the increase in foreign buying in the stock market.

“Thus the recent rally in the stock market can be attributed mostly to global and external factors, with the strong first-quarter GDP reported in May being the only [local]reason why PSEi [Philippine Stock Exchange index] rallied,” he added.

The chief investments officer of Sun Life Financial, Michael Gerard Enriquez, pointed out that the post-election boost was expected, as the stock market usually rallies after every presidential election.

“In the past, we have seen that after the presidential elections, equity markets have really significantly moved up, and I think a lot of this has been because of the sentiment towards a new president,” he said.

Meanwhile, a joint report by the investment bank, First Metro Investment Corp. (FMIC), and University of Asia and the Pacific (UA&P) sees market investors taking cues from the US Fed in the next two months.

FMIC and UA&P in its latest The Market Call report said that in the next two months, the Philippine equities market would likely continue to take cues from the Fed, and would remain watchful of Duterte’s direction in the first days of his term.

“Valuations are stretched, but could be sustainable in the interim given the increased risk appetite. We prefer to remain in a wait-and-see mode as we await further clarity from President-elect Duterte’s economic policies and plans,” it said.

The report added that the first 100 days of the Duterte administration will be critical, noting that the market will be digesting his economic and political plans and policies.

“We advise investors to wait-and-see, but also to be mindful of trailing stops. Investors’ optimism will likely continue; however, the market will remain sensitive to the Fed. The first 100 days of Duterte’s administration are critical to our view. Our market forecasts and assumptions are weighted heavily on his plans and policies,” it said.

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