Philippine Trump will not damage growth - for now

The country goes to the polls Monday to elect a new president. Bankers, investors and executives have reason to be nervous.

The Philippine electorate goes to the polls on Monday, picking the next president of a country that has become one of the fastest-growing in Asia.

They have a choice between a business-friendly political neophyte, a pair of well-known establishment figures, and a brash, shoot-from-the-hip strongman who has bragged that he will kill 100,000 criminals if he is elected, has flirted with the idea of declaring a revolutionary government, and has even dared the US and Australia to cut diplomatic ties.

So far, they are favouring the strongman.

The increasing likelihood that Rodrigo Duterte will emerge the victor in the elections has not been greeted well by investors. The Philippines’ five year credit default swaps had widened to 116.5bp by Friday, 10bp higher than they were a month ago. 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 long term they tend to do pretty well,” Henrik Raber, Standard Chartered’s global head of capital markets, told FinanceAsia.

It has been hard enough for incumbent president Benigno Aquino III 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 decisive a president as he has been a candidate.

Rodrigo Duterte

Duterte has also acknowledged, in a rare moment of public humility, 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 Philippine 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.

The mooted IPO of Philippine construction company Cemex has also given bankers reassurance. The company recently went on a roadshow to drum up demand for the listing. Investors were, by and large, positive about the deal.

“They viewed the political backdrop more as entertainment than off-putting,” said a person involved in the deal. “Investors focused more on the country’s need for infrastructure and what that means for cement demand than politics.”

This all means that Duterte should not be considered a great risk in the short-term. The risk of a Duterte presidency is only going to be apparent in the long-term.

Aquino’s style of government has been quiet and gradual. After early emphasis on fighting corruption and cleaning up the public finances, he has attempted small steps to improve the country’s attractiveness to foreign and local investors alike.

Duterte is no such animal. His suggestion that he could impose a ‘revolutionary government’ — giving him executive and legislative authority — if his early policy efforts are frustrated might seem far-fetched. It probably is. But it reveals the level of uncertainty about how much his rhetoric will translate into policy.    

President Aquino has suggested that Duterte could become a dictator. That may be motivated at least in part by his desire to see Mar Roxas, his chosen successor, take office. But Duterte’s grand pronouncements make it seem less far-fetched than it would be for many politicians, including the other presidential candidates.

It is understandable, then, that some investors are feeling jitters. The Philippines has posted eye-catching growth rates over the last few years, growing at 5.8% GDP growth in 2015 even after a slowdown. The administration of Benigno Aquino has proved a boon for the local economy, and has been great news for corporations and bankers. They do not want that to come to an end.

Duterte will not change the fundamentals of the Philippines in the short-term. The country will remain open for business, and will continue to provide growth opportunities for corporations, and plenty of deals for bankers. But a Duterte victory would make the longer-term health of the economy harder to predict.

Investors, bankers and analysts should be watching the election closely.

"Regardless of the victor, the new administration will inherit a country that is in the best shape in
decades," said Natixis analyst Trinh Nguyen  in a research note on Thursday. "The hope is that Filipinos will make carefully considered choices and elect leaders that put the country’s social and economic interests first."


The hopefuls:


Grace Poe


Grace Poe, a first-term senator, and the adoptive daughter of former presidential candidate Fernando Poe Jr. She has had a rocky path to the election, facing repeated accusations that she is not a natural-born Filipina. She is regarded as pro-business, having spoken in favour of foreign investment and the broadening of service sector growth in the Philippines.

Around 21% of respondents to a recent survey by polling firm PulseAsia, conducted April 26-29, said they would vote for Poe in the election.


Jejomar Binay


Thanks to the Philippine tradition of electing vice-presidents directly, Binay has spent the last six years working under one of his biggest political rivals. He has a key base of power in Makati, the business district of Manila. He is seen by some analysts as competent, with a long track record of leadership.  But he has been subjected to allegations of corruption – which he categorically denies.

Binay got support from 17% voters in the PulseAsia poll.


Mar Roxas

Former secretary of the interior and local government

Roxas, a former investment banker, is a key political ally of president Aquino.  He is an experienced politician, but appeared not to inspire voters in the early period of the election campaign. But as the election has neared, his chances have increased significantly.

He got the support of 22% of voters in the most recent poll.


Rodrigo Duterte

Mayor of Davao

Duterte has appealed to voters largely by stressing his crime-busting credentials. But he has been a controversial figure: joking about the rape of a nun, daring the US and Australia to cut diplomatic ties, and making multiple comments that have been taken as evidence that, as the chair of the Makati Business Club put it, he has “a distinct lack of respect for the rule of law”.

Duterte is the clear leader in the polls, getting support from 33% respondents to the recent PulseAsia poll.


Additional reporting by Alison Tudor-Ackroyd



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