The Philippines is suffering from a presidential discount. Local equities have delivered poor returns during the first year in office of President Duterte. That suggests little positive regard for the hard-nosed leader’s solid economic agenda.
The country is in strong financial shape. Despite a bit of a slowdown in the first quarter, the World Bank forecasts annual economic growth of almost 7 percent this year and next, consumer confidence among the young population has hit an all-time high, and government debt relative to GDP is the lowest in three decades.
Duterte’s plan to boost infrastructure spending and to cut income tax offers further reasons to be optimistic. Building more roads and airports should help the sprawling local listed conglomerates. And putting more money into citizens pockets, will benefit fast moving consumer goods players. Robust popular support also means there is a high chance Duterte can push through his planned overhaul.
Yet, those who invested when Duterte took office on June 30, 2016, have been stung. The peso has fallen more than 7 percent against the dollar during the president’s tenure and total shareholder returns from the MSCI Philippines have been virtually flat.
Both indicators have lagged the comparable performance for major Southeast Asian peers.
True, Philippine stocks are already similarly priced to regional peers. The latest comparable data from IBES indices on Thomson Reuters shows local equities trade on a forward price to earnings multiple of 16.9 times, compared to 16.1 times for Indonesia and 14.7 times for Thailand. But the Philippines is growing much faster than these countries. India has a comparable growth rate and its stocks command a multiple of 18.2 times.
Of course, it is hard to focus on the broad economic prospects and real reforms when Duterte is pressing on with his controversial bloody war on drugs and martial law has been declared in a southern province of the country amid an insurgency by militants linked to the Islamic State. As long as there are such messy distractions, the Philippines will wait for a premium.