Duterte's Flip-Flops And Corruption Haunt Philippines Stocks
Driven by rising commodity prices, emerging equity markets have been in a rally mode lately.
But not the Philippines equities, which have been left in the dust by regional and global indexes.
The iShares MSCI Philippines ETF is up 4.13 percent for the year and down 4.34 percent for the last twelve months, while the MSCI Emerging Markets Index is up 12.69 percent for the year and 15.38 percent for the last twelve months.
Indian and Chinese equities have outperformed Philippines equities by a big marginsee table
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Source: Finance.yahoo.com 3/10/2017
That may come as a surprise to some. Philippines beats other emerging markets in a number of macroeconomic metrics, including debt to GDP ratio and current account balancesPhilippines has a current account surplus
Still, the Philippines 1.7 growth is far below that of other emerging markets like India, China, Indonesia, and Pakistan. And thats one of the factors that have been preventing Philippines equity markets from participating in the recent emerging market rally.
Another, more important factor, is President Rodrigo Dutertes flip-flops over the South China Sea disputes, with China on the one side and its neighbors and the US on the other.
Dutertes flip-flops began last July after an international arbitration ruling last July, which found that China has no historic title over the waters of the South China Sea.
The ruling was a big victory for both the US and Philippines, its close ally, which had filed the arbitration case.
Nonetheless, Philippines President Rodrigo Duterte decided to side with China on the dispute, and seek a divorce from the US.
Apparently, President Duterte determined that his country was better off appeasing rather than confronting China. But confused investors thought otherwise, looking in other emerging markets for better opportunities.
Wait, there is the most important factor of all: the worsening of corruption under Dutertes administration. The Philippines dropped six notches in the 2016 Corruption Index country ranking published recently by Transparency International.
This development may come as surprise to some, given Dutertes harsh tactics against corruption -- which have claimed many casualties, including some of his close associates.
Others blame President Dutertes predecessors for the worsening of corruption. And they may be right, given the brief time his administration is in office.
In either case, growing corruption is a signal to equity markets that the country is losing the war on an old problem that for decades has retarded this great countrys economic growth, and prevented it from making the great leap forward from an emerging to developed nation.
In short, Philippines governments seem to have been doing everything they can to raise rather than contain political risks. In practice, at least, taming investor expectations about the prospects of the countrys equity markets
Driven by rising commodity prices, emerging equity markets have been in a rally mode lately.
But not the Philippines equities, which have been left in the dust by regional and global indexes.
The iShares MSCI Philippines ETF is up 4.13 percent for the year and down 4.34 percent for the last twelve months, while the MSCI Emerging Markets Index is up 12.69 percent for the year and 15.38 percent for the last twelve months.
Indian and Chinese equities have outperformed Philippines equities by a big marginsee table
Source: Finance.yahoo.com 3/10/2017
That may come as a surprise to some. Philippines beats other emerging markets in a number of macroeconomic metrics, including debt to GDP ratio and current account balancesPhilippines has a current account surplus
Still, the Philippines 1.7 growth is far below that of other emerging markets like India, China, Indonesia, and Pakistan. And thats one of the factors that have been preventing Philippines equity markets from participating in the recent emerging market rally.
Another, more important factor, is President Rodrigo Dutertes flip-flops over the South China Sea disputes, with China on the one side and its neighbors and the US on the other.
Dutertes flip-flops began last July after an international arbitration ruling last July, which found that China has no historic title over the waters of the South China Sea.
The ruling was a big victory for both the US and Philippines, its close ally, which had filed the arbitration case.
Nonetheless, Philippines President Rodrigo Duterte decided to side with China on the dispute, and seek a divorce from the US.
Apparently, President Duterte determined that his country was better off appeasing rather than confronting China. But confused investors thought otherwise, looking in other emerging markets for better opportunities.
Wait, there is the most important factor of all: the worsening of corruption under Dutertes administration. The Philippines dropped six notches in the 2016 Corruption Index country ranking published recently by Transparency International.
This development may come as surprise to some, given Dutertes harsh tactics against corruption -- which have claimed many casualties, including some of his close associates.
Others blame President Dutertes predecessors for the worsening of corruption. And they may be right, given the brief time his administration is in office.
In either case, growing corruption is a signal to equity markets that the country is losing the war on an old problem that for decades has retarded this great countrys economic growth, and prevented it from making the great leap forward from an emerging to developed nation.
In short, Philippines governments seem to have been doing everything they can to raise rather than contain political risks. In practice, at least, taming investor expectations about the prospects of the countrys equity markets