By Ian Sayson
Losses in Philippine stocks are accelerating as foreigners keep pulling money from Asia’s most expensive market amid speculation the outbursts of President Rodrigo Duterte are hurting investor sentiment.
The Philippine Stock Exchange index dropped for a third day, losing 1.3 percent to 7,619.10 Wednesday, the biggest decline in five weeks. The gauge has fallen 5.9 percent from a 15-month high on July 21, paring its gain this year to 9.6 percent.
Foreign funds have pulled $276 million from local shares in a 10-day run of of outflows through Tuesday. The index is down 2.3 percent this quarter, the only decliner among major Asian markets.
Duterte’s threat to swear at US President Barack Obama if he criticized an anti-drug campaign that’s left around 2,400 dead, and the subsequent cancellation of a meeting between the leaders, “didn’t sit well” with overseas investors, said Rafael Palma Gil, a portfolio manager at Rizal Commercial Banking Group in Manila.
Duterte’s behavior is taking the shine off a market that had been an investor favorite due to one of the highest economic growth rates in Asia.
“The latest incident raises concern that President Duterte’s unpredictable behavior in politics will be disruptive and could eventually spill into economics and business,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc., the Philippines’ biggest lender. It’s “further weakened a market that’s already been made vulnerable by uncertainty over U.S. interest rates, elevated valuations and overseas fund withdrawals,” he said.
The Philippine index is trading at 18.3 times 12-month estimated earnings. While that’s down from 19.6 in July, it’s still the highest in Asia and at a 31 percent premium to the MSCI Asia Pacific Index. The country’s economy expanded 7 percent last quarter from a year earlier, after 6.8 percent growth in the first three months of 2016.
Investors may be better off holding cash in the near term as the index could test its 7,500 support level, said BDO Unibank’s Ravelas. The gauge could fall as low as 7,330 in the next two months as the budget deficit is set to rise when taxes are cut and spending raised, April Lee-Tan, head of research at COL Financial Group Inc. in Manila, said Monday.
“Smart investors should take advantage of the weakness and accumulate because this is all sentiment-driven,” said Rizal’s Palma Gil. “Other than incendiary statements and killings related to the drug war, investors like Duterte’s economic and fiscal policies or at least what has been communicated so far,” he said, adding that he expected the index would go back up to 8,000.
A deadly Sept. 2 bombing in Davao City, Duterte’s hometown, and the president’s subsequent declaration of a “state of lawlessness” pose only a limited credit impact in the near term, Moody’s Investors Service said in a statement released Wednesday.