Losses in Philippine stocks are accelerating as foreigners keep pulling money from Asia’s most expensive market, amid speculation that the outbursts of President Rodrigo Duterte are hurting investor sentiment.
The Philippine Stock Exchange Index fell 1.3 per cent to 7,619.10 in its biggest decline in five weeks. The gauge has dropped 6 per cent from a 15-month high on 21 July, paring its gain this year to 9.6 per cent.
Foreign funds pulled $58m (£43m) from local equities on Wednesday, the most in almost a year, and have sold a net $333m in an 11-day run of outflows. The index is down 2.3 per cent this quarter, the only decliner among major Asian markets.
Duterte’s threat to call US President Barack Obama a “son of a whore” if he criticised 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 behaviour is taking the shine off a market that has been an investor favourite 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, the Philippines’ biggest lender.
It has “further weakened a market that’s already been made vulnerable by uncertainty over US 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 is down from 19.6 in July, it is still the highest in Asia and at a 32 per cent premium to the MSCI Asia Pacific Index. The country’s economy expanded 7 per cent last quarter from a year earlier, after 6.8 per cent 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 Mr Ravelas. The gauge could fall as low as 7,330 in the next two months over concerns the budget deficit will rise when taxes are cut and spending raised, April Lee-Tan, head of research at COL Financial Group in Manila, said on Monday.
The most controversial quotes from Rodrigo Duterte
The most controversial quotes from Rodrigo Duterte
1/9 On killing drug addicts
“These sons of whores are destroying our children. I warn you, don’t go into that, even if you’re a policeman, because I will really kill you. If you know of any addicts, go ahead and kill them yourself as getting their parents to do it would be too painful”
2/9 Message to China
“I will go there on my own with a Jet Ski, bringing along with me a [Phillipino] flag and a pole, and once I disembark, I will plant the flag on the runway and tell the Chinese authorities, ‘Kill me’ ”
3/9 Christmas message to law-breakers
“If you do not want to stop, and just continue committing crimes, then this would be your last Merry Christmas”
4/9 On sex life
“I was separated from my wife. I’m not impotent. What am I supposed to do? Let this hang forever? When I take Viagra, it stands up”
5/9 On the drugs trade
“None of my children are into illegal drugs. But my order is, even if it is a member of my family, ‘kill him'"
6/9 Insulting the Pope
“We were affected by the traffic. It took us five hours. I asked why, they said it was closed. I asked who is coming. They answered, the pope. I wanted to call him: ‘Pope, son of a wh**e, go home. Do not visit us again’”
7/9 Joke about rape
“I saw her face and I thought, 'What a pity... they raped her, they all lined up. I was mad she was raped but she was so beautiful. I thought, the mayor should have been first”
8/9 Insulting Barack Obama
"Mr Obama should be respectful and refrain from throwing questions at me about the killings, or son of a bitch, I will swear at you in that forum"
9/9 On Abu Sayyaf Islamic militants
"If I have to face them, you know I can eat humans. I will really open up your body. Just give me vinegar and salt, and I will eat you. If you annoy me to the fullest... I will eat you alive. Raw"
“Smart investors should take advantage of the weakness and accumulate because this is all sentiment-driven,“ said Mr 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 bombing on 2 September 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 on Wednesday.
“If recent events lead to prolonged uncertainty around security or economic policy, such a development would eventually dampen business confidence and consequently, economic outcomes,” Moody’s said. Duterte’s “increasingly controversial law and order policies could exact an opportunity cost for reform.”