Booming Philippine Markets Pin Hopes on Duterte for Next Rally
By Ditas Lopez and Ian Sayson
When President Rodrigo Duterte delivers his annual speech to the nation on Monday, he’ll have plenty to brag about. The Philippine economy is among the fastest-growing in the world and markets are booming.
But global risks are rising amid the prolonged trade war, and investors looking for the next leg of the market rally will scrutinize Duterte’s economic priorities as he embarks on the last half of his six-year term. Top on their minds are the $180 billion infrastructure program and new tax policies.
“If Duterte hits the right notes, markets would have another leg to rally on," said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. “There’s great interest in these measures to be prioritized to sustain the kind of growth rates we’ve been seeing.”
Duterte is scheduled to speak before lawmakers at about 4 p.m. in Manila., after market close.
Peso
If history is any guide, there’s a big chance the peso will rise the day after the State of the Nation Address. The currency has risen in nine of the last 10 years, posting an average gain of 0.15%.
“We remain bullish on peso and we would like to sell the dollar-peso on rallies,” said Qi Gao, a Singapore-based currency strategist at Scotiabank. The currency is among those that will benefit the most as the Federal Reserve’s dovish stance lures inflows, he said.
The peso closed at 51.04 per dollar on Friday, near its strongest level since January 2018. The currency’s next resistance is at the 50 pesos a dollar, Gao said.
Stocks
For stocks traders, it may be bad news first before good news, according to three decades of data. On the day of the president’s speech, the benchmark Philippine Stock Exchange Index retreated about two-thirds of the time, and posted an average loss of 0.4%.
The gauge recovered more than half of the time the day after since Congress was restored in 1987, posting an average gain of 0.3%. The trend will likely hold and given the current market momentum, the index will hit 8,500 sooner than later, according to Jun Calaycay, head of research at Philstocks Financial Inc., who called the bull market a week before it happened.
“The market is used to Duterte’s controversial antics," Calaycay said. “But should he start talking about policy, regulation and his legislative agenda then that would be a plus.”
Local Bonds
Philippine peso bonds are outperforming peers in emerging-markets as the central bank embarks on interest-rate cuts. Ten-year bond yields fell below 5% this month from more than 8% in October.
“Relative to the rest of EM world, the Philippines is an island of stability, continuing a pace of high growth and foreign investment,” said Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Standard Investments in London, who remains long on Philippine bonds.
Meanwhile, the government’s push to cut corporate income taxes will attract more foreign investors while the move to tax foreigners working in the offshore gaming sector will generate additional annual revenue, said Alan Atienza, treasurer at Philippine Bank of Communications in Manila.
Market Highlights
Peso is among the top performers in Asia this year, rising 3%. The currency is poised to end six years of losses
Benchmark stock index just entered a bull run last week, and is now trading above the 8,000 key level
Local currency bonds have returned about 20% this year, among the biggest in emerging markets
© 2019 Bloomberg L.P.
