Notwithstanding the country’s status as one of Asia’s fastest growing economies, President Duterte’s anti-American rhetoric, policy uncertainties and concerns of law and order are making investors more cautious, and are adding to jitters over US interest rates ahead of a forthcoming US Federal Reserve meeting.
“The market’s perception of the political and diplomatic environment has turned for the worse,” ING economist for the Philippines Joey Cuyegkeng said in a research note issued Wednesday. “The incessant anti-US rhetoric from the new government and concerns of law and order [related to extrajudicial killings] and policy uncertainties have contributed to the guarded view of investors.”
Citing media reports, Cuyegkeng expressed concern on indications of a widening of rift between the Philippines and its longtime US ally.
When the Philippine Stock Exchange index fell by over 100 basis points Wednesday last week when the rest of regional markets went up, stock traders pointed out concerns over a potential friction between Duterte and US President Barack Obama.
“Today’s headline continues with the perceived anti-US sentiment or rhetoric of government with the order for the US to remove its military personnel from Mindanao where they have been present for years, the reason being that US military personnel would be high-value targets of the Abu Sayyaf group,” Cuyegkeng said.
The economist also noted a report from the Philippine National Police that a little more than half of the almost 3,000 killed during the government’s ongoing anti-illegal drugs campaign were under investigation and had been considered by media as vigilante killings. The rest were reportedly killed during police operations.
Cuyegkeng also took note of reports that the President last week intentionally snubbed a meeting between leaders of the Association of Southeast Asian Nations and Obama which Philippine government officials had initially attributed to Duterte having a migraine.
Duterte eventually revealed that he had skipped the Sept. 8 meeting between Obama and Asean leaders in Laos because, as president of a sovereign state, he did not want to be lectured about his war on drugs.
“Recent policies have challenged the prevailing economic order, too. Some may have acceptable reasons such as to encourage greater competition and bring about greater service to the consumers or to address rent-seeking activities and promote fair play and to improve inclusivity of economic growth and bring about a greater number of beneficiaries of the relatively high growth of the economy that is expected for the rest of the decade,” Cuyegkeng said.
“But the policies also bring about questions of sustainability of economic activity and private investments. All these uncertainties and concerns exert greater importance in the investment decisions of local and offshore investors. These, too, could eventually undermine prevailing macroeconomic fundamentals as the new government puts in place a new political, diplomatic and economic order.
Jose Mari Lacson, head of research at ATR Asset Management, said based on Philippine government bonds’ credit default swaps—referring to insurance-like protection for bondholders—he said these were improving since last week, implying that the Asean Summit issues were not discounted as risk factors.
“Having said that, there is growing uncertainty over policy. Companies may need to question their assumptions on foreign policy and how it affects their business model,” he said.
However, HSBC Philippines president Wick Veloso said the sluggish markets seen locally were being driven more by external forces than domestic forces.
Asked about the impact of escalating political noise, especially amid the new administration’s war or drugs, Veloso said: “Everybody is on a wait-and-see attitude, trying to digest what’s going in. But it’s not something that’s consuming them. What’s consuming the market are global market forces.”
HSBC acts as custodian to about $45 billion in foreign portfolio investments in the Philippines, of which around 95 percent consist of equity investments.
Across the region, investors are jittery over the upcoming US Federal Reserve meeting on Sept. 20-21, leading to a sell-off across asset markets which has intensified in recent days.