Markets try to digest Trump presidency
With his protectionist and isolationist rhetoric still reverberating among investors, America’s choice of Donald Trump as its next president has caused jitters in financial markets in the Philippines and other emerging markets. This volatility is seen to continue in the days ahead.
Last week, the main-share Philippine Stock Exchange index (PSEi) tumbled by 3.49 percent to close on Friday at an eight-month low of 6,975.09 while the peso has depreciated to nearly $48.95 against the dollar, its weakest level in 7.5 years.
Local stockbrokerage AB Capital Securities said prospects of a Trump presidency had yet to sink in, with analysts worried about the negative impact on business process outsourcing (BPO) and overseas Filipino worker (OFW) remittances due to Trump’s “America-first” posturing.
“Our market is now trading at a healthier 19.45x level, not being the most expensive in the region any more,” AB Capital said. A price-to-earnings ratio of 19.45x means investors are paying 19.45 times the amount of money they expect to make from this market.
The full release of corporate earnings results this week, AB Capital said, should give a clearer picture as to how the PSEi would close this year. So far, the PSEi has wiped out most of the gains it made this year after closing at 6,952.08 in 2015.
“The first one to two trading days are crucial for PSEi as it will attempt to recover above breakdown point of 7,090,” said Luis Gerardo Limlingan, managing director at Regina Capital Development. But given the index’s downward trajectory, Limlingan said there was a strong likelihood that the PSEi would test 6,849, which could trigger bargain-hunting.
“We discourage any aggressive buying this week and instead wait for the index to stabilize first and establish a reversal pattern before repositioning. Selling into rallies is a priority, especially for issues currently trading in a downtrend,” Limlingan said.
“We may see the exodus to continue if we cannot climb back to 7,000 in the first trading days,” he said.
New York-based think tank Global Source said among Southeast Asian countries, the Philippines has been tagged as the most at risk from a Trump presidency, given the business tycoon’s protectionist bent, espoused policy to discourage outsourcing as well as his call for stricter enforcement of immigration laws.
Last year, the BPO industry generated $21 billion revenues for the Philippines, accounting for 16 percent of gross domestic product and supporting private spending. About a third of remittances ($8.4 billion) are sent from US banks, while 77 percent of BPO exports are for US-based companies.
Based on the BPO industry’s new roadmap, BPO revenues will have a compounded annual growth rate of more than 9 percent in the next six years to reach $38.9 billion by 2022, despite the increasing use of artificial intelligence and other labor-saving technological advances.
“While fears of the unknown are understandable, any risk assessment at this time would largely be guesswork without clarity on Mr. Trump’s precise policy prescriptions and seriousness in implementing them. After all, the Philippine’s cost advantage for BPOs is compelling and any penalty for outsourcing that Mr. Trump has in mind would have to be heavy to be effective, something that a businessman-turned-leader would easily grasp,” Global Source said.
What Global Source finds interesting, however, is some political analysts’ reading of Trump’s victory as an opportunity to reboot Philippine-US relations, with Trump and Philippine President Duterte seen as “kindred spirits.”
In the case of Mr. Duterte, the unorthodox Philippine President has significantly toned down his anti-US rhetoric since Trump was elected US president, saying he did not want to quarrel with the US anymore.
“For BPO investors, that would be welcomed indeed,” Global Source said.
Emerging markets guru Mark Mobius of Franklin Templeton Investments, in a Nov. 11 research note, titled “Emerging Markets and a Trump Presidency: No Need to Panic,” said that while global markets would likely remain volatile for a period of time given the uncertainty surrounding potential US policies under a Trump presidency, investors should realize that much of the rhetoric heard on the campaign trail might not result in any concrete action.
“Taking his comments during the campaign at face value, many expect some extreme policies to be put into place. However, I feel as if some people may be expressing too much pessimism and fear and it may not be warranted given the nature of the US economy and political system of checks and balances that remains in place. And certainly, should Trump be able to achieve the type of robust economic growth he had pledged for his country, we think other nations—including Mexico and other emerging markets—are likely to benefit,” Mobius said.
Personally, Mobius said he was not all that shocked that Trump had won the election, noting how similar voter disenfranchisement in Europe and other places around the world, which has now manifested in the United States.
