Historical patterns



    With elections standing right outside our door, many of us are wondering if personal investments are safe going into the next administrative regime. This article will not give you a definitive answer to this question but attempts to look at historical patterns of impact on the Philippine Stock Exchange (PSE) during the election season and forecasts the impact on the stock market of the four front-runners in the 2016 race.

    Stock market rises despite change in leadership
    The presidential election cycle theory suggests that equity markets struggle to perform in the year after the election of a new President. The underlying assumption of this theory is very simple: a newly-elected President often tries to focus on campaign promises within the first month of his term and wider structural reforms often show an effect after several months. However, the PSE has shown an adverse pattern during previous election cycles. Previous Presidents of the Philippines were greeted with optimism by the market and surging stocks. During the last four presidential cycles since 1992, the first year of each President’s term yielded an average return of 15 percent, whereas the following years, returns averaged only about 5 percent per annum. The local bourse had great uplifts after both Ferdinand Marcos and Fidel Ramos came into the presidency. Does this mean now is a good time to buy new stocks? It depends. (See table below)

    All eyes on the economic effect of the next President
    Rodrigo Duterte, Grace Poe, Jejomar Binay and Manuel Roxas 2nd—all four candidates still have a chance to win the elections and despite the race being so tight, each candidate’s appointment would impact local equities in a different manner. Senators Poe and Roxas seem to be widely favored by foreign investors as their campaigns are perceived to be built around structural and economic growth rather than hollow political promises. Vice President Binay is among the more experienced candidates, but corruption allegations have been hurled against him, causing concern among some big investors that his rise to the presidency could mean a step backward for the economy. To the surprise of many, Davao City Mayor Rodrigo Duterte has been steadily gaining ground in the surveys such as those conducted by Pulse Asia and the Social Weather Stations (SWS). Duterte represents uncertainty for most foreign market participants as his campaign is based on an anti-criminality platform rather than economic reforms

    Investors from abroad tend to prefer candidates who are transparent and will pursue structural reforms that have proven to be effective in other countries. Hence, the sudden slump of both the peso and the PSE after recent opinion polls showed Rodrigo Duterte as the front-runner for next week’s elections. We have seen a very volatile stock market in the past weeks, driven mostly by foreign investors who pulled out $34 million from local stocks in April 2016 alone. This might not be a bad thing for local investors, after all. The improved returns seen in past presidential cycles were almost entirely driven by local investors and if history repeats itself, there may be a great buying opportunity for investors between now and Sunday. However, predicting how the stock market will move within the short term is extremely difficult and investors should, instead, look at the mid-term based on the table above.

    Following such a theory, it would seem like whoever wins the presidency is irrelevant to the direction of the stock market. However, it is safe to assume that foreign buying will be much greater if either Poe or Roxas wins the elections, over Binay or Duterte. This assumption is simply based on the candidates’ campaign platforms and their corresponding transparency.

    Moritz Gastl is the Managing Director of MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products.


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    1 Comment

    1. I agree with your statements. Duterte and Binay will be very bad for our stock markets. Especially Duterte whose political platform is to maximize assassination as the solution to rising crimes. Who will be next in line ? I hope it is not me.