Prospects of Duterte win alarm local markets

A victory for potential strongman Davao City Mayor Rodrigo Duterte is causing considerable anxiety in the business community and has already resulted in a downswing in the Philippines Stock Exchange index (PSEi), among other business indicators. 

The alarm has heightened since Duterte appeared before a joint meeting of the Makati Business Club (MBC) and Management Association of the Philippines (MAP), during which he outlined how he would carry out his anti-crime agenda to restore peace and order in the country.

In a speech liberally spiced with cuss words and jokes about his libido, he bragged about how he planned to throw the corpses of criminals in Manila Bay and rambled on and on from one topic to another, instead of presenting a detailed economic plan, which the businessmen had invited him for.

Much of the laughter that greeted what many businessmen mildly called “inappropriate” jokes by Duterte was described as “nervous.”

The local stock barometer ended lower last Friday, still on heightened investors’ anxieties over the outcome of the elections.

The Philippine Stock Exchange index (PSEi) lost 7.88 points to 6,991.87 from previous day’s 6,999.75 finish.

“Election jitters did not help the local bourse. Investors continued to stay in the sidelines,” said Jonathan Ravelas, Banco de Oro Unibank chief market strategist.

Heightening the anxiety was what many believed to be a “desperate call” by President Aquino last Friday for candidates to forge an alliance against Duterte in a last-ditch move to stop the city mayor from converting his runaway popularity into victory.

Duterte is considered by the business sector as one of the most divisive, alarming presidential candidates, with his advocacy of summary executions as a deterrent against rampant crime and illegal drugs.

But some experts did not take kindly to Mr. Aquino’s call; they said it would onlybackfire on his chosen successor, Mar Roxas.

Roxas invited rival Grace Poe for talks aimed at derailing Duterte, who, according to commercial survey firms, now enjoys a double-digit lead in their latest opinion polls; Poe rejected Roxas’s appeal.

The camp of Vice President Jejomar Binay, which continued to exude confidence, described the President’s call as “hollow” and too late in the race.

Political analyst Prospero de Vera said the government had seen the writing on the wall for its candidate and it needed to change tack.

“This is all part of the administration’s messaging to project that Manuel Roxas has the momentum,” he said.

“They need these dramatics to prevent allies in the provinces from jumping ship,” de Vera added.

Duterte was a clear leader in final opinion polling, with a lead of 11 points over Poe, and with Roxas close behind in third.

Incendiary rhetoric

Duterte, 71, is the alternative candidate who has lit up the race with his incendiary rhetoric and image as a loose cannon.

Experts say his recent surge, and Poe’s popularity, represented public disenchantment with the Aquino administration.

That sentiment has perplexed investors and some Western governments, given the robust performance of the Philippine economy under Mr. Aquino. However, criticism by opponents that it has not translated into jobs or better livelihoods for millions of poor appears to be resonating.

Poe’s pro-investment, anti-poverty platform is striking a chord, however, as are Duterte’s promises of a war on crime and his profanity-packed speeches during a campaign that bears the emblem of a clenched fist.

Duterte’s campaign manager, Leoncio Evasco Jr, also described Mr. Aquino’s call for a united front against the Davao city mayor as desperate.

“It also further unmasks the true character of the Aquino regime—one that, in the face of debacle, will abandon ship and run like a headless chicken,” Evasco said in a statement.

Duterte emerging as the victor in the elections has not been greeted well by investors. The country’s five-year credit default swap rates had widened to 116.5 basis points (bp) by Friday, 10 bp higher than they were a month ago. A high default rate means that investors consider risks have grown.

Bond prices are down. The peso has underperformed against other countries in the region.

This does not bode well. But there is reason to think that the Philippines can stay on track in the near-term whoever wins the vote.

“Investors tend to take things in their stride. Emerging markets tend to be volatile when politicians change but in the long term, they tend to do pretty well,” Henrik Raber, Standard Chartered’s global head of capital markets, said.

It has been hard enough for Mr. Aquino to get things done even with a strong Senate majority, says a sovereign credit analyst in Singapore. Duterte will have an even harder job. He represents a small political party, and there appears little chance that he will enjoy widespread support from Congress, especially if he proves as indecisive a president as he has been a candidate.

Duterte has also acknowledged, in a rare moment of public humility, that he is no expert on economic policy.

As a result, he plans to bring in the top economic minds in the country to advise him. That should help limit the impact of a Duterte victory on the financial markets.

Dealmakers remain relatively sanguine about the impact a Duterte victory will have on the primary markets.

The limited international bond issuance of local banks and corporations means the election is not weighing heavily on the G3 bond market, said a head of debt syndicate in Hong Kong. The country’s economic growth means it still offers good opportunities for private financing, added a senior banker. LUIS LEONCIO