Analysts unsure if peso, market losses related to elections

MANILA, Philippines – As the elections draw nearer, local markets are showing signs of nervousness, though there are mixed opinions about what could be causing the downward trends.

The Philippine Stock Exchange Index (PSEi) closed at 7,180.53 on Wednesday, April 27, down 0.44% and continuing a trend that has seen it drop by 0.48% for the past 5 days.

Bloomberg also reported that foreign investors withdrew $41 million from the PSE this month in what is a reversal from last month’s net capital inflow of $482 million.

The Philippine peso has also taken a hit, reaching P46.94 against the dollar on Tuesday, April 26 – its weakest level in two months. At the beginning of April, the peso stood at P46.09 against the dollar.

Some observers have pointed to the latest pre-election surveys, which showed that presidential candidate Rodrigo Duterte has begun to break away from the field.

The most recent Pulse Asia survey indicated that the Davao City mayor is popular across all socio-economic classes. The survey was conducted after his controversial comments on rape, which triggered an uproar throughout the country and globally.

Duterte’s camp tried to soothe investors’ worries, saying in a statement on Tuesday that “under the Duterte administration, the stock and financial market will be protected and it will be business as usual.”

Hard to pin on elections

Analysts have different views on what may be behind the latest market uncertainty.

While some economists believe developments in the local political scene are to blame, others point to the fact that global markets have been experiencing volatility over the past year.

The weakening of the peso may also largely stem from uncertainty about the forthcoming interest rate hike from the US Federal Reserve (Fed).

Other global factors such as the slowdown in China and in Latin America, as well as falling oil prices, have also contributed to this.

“We are seeing some capital outflows but you can’t really ascribe to any one thing. This has been going on since news of the potential rate hike of the Fed reached the market. Funds have been going in and out so it’s really hard to say,” said Mark Bautista, head of market research at Metrobank.

He also noted that the prevailing investor sentiment is that some of the stocks on the PSE might be overpriced. Bautista expects both net inflows and outflows of capital in the stock market throughout year.

He added that Metrobank expects this volatility to continue even after the elections, as the biggest issue right now is when the Fed will actually start raising the rates.

Metrobank forecasts the peso to end the year at P48 against the dollar, driven by the current conditions in the global market.

The Fed’s Federal Open Market Committee (FMOC), responsible for dictating interest rates, is set to meet on Wednesday (US Eastern Standard Time). A decision not to raise interest rates is widely expected at the meeting.

Foreign investors usually pull capital out of emerging markets in anticipation of a Fed rate hike as the dollar is seen as a safer bet.

“The dollar has been strengthening across most emerging markets for the past two weeks ahead of the FOMC meeting tonight as the rhetoric is anticipated to be less dovish,” Emilio Neri, vice president and lead economist at BPI Financial Markets Group, told Rappler in a text message.

He did point out that the Philippines has underperformed slightly compared to other emerging markets, though “it was hard to say it’s attributable to politics.”

Neri added that BPI is not worried about capital outflows, as the bank is actually concerned about the rapid strengthening in capital inflows last month. – Rappler.com