Duterte’s Bull Market In The Philippines May Not End Well

18-Jul-2019 Intellasia | Forbes | 6:02 AM Print This Post

It’s become a cliche to point out that stock market rallies rarely reflect events in the real economy. Sometimes, though, surging valuations can be a contrarian indicator.

Take Manila, where the Philippine Stock Exchange is on a tear. The market slumped in 2018 to become one of the globe’s worst performers. The 13 percent drop marked the weakest showing since the 2008 Lehman Brothers crisis. Selling reflected high inflation, a chronic current-account deficit and a fears Donald Trump’s trade war would slam Asian growth.

Fast-forward 228 days, from the market’s late-November low, and all’s seems forgiven. The 22 percent jump since then puts Rodrigo Duterte’s market in bull-run territory. Local media gathered a few theories for why. Inflation cooled to a 2.7 percent annualised rate. The peso is no longer cascading lower (it’s up 2.8 percent this year). And the central bank is now in easing mode.

Trouble is, much of the change to which investors are responding is happening beyond Philippine borders. Inflation, for example, is easing virtually everywhere. The specter of Federal Reserve rate cuts has Asian currencies rising. Look no further than Thailand, where the baht’s 4.5 percent rally has stumped officials in Bangkok.

What’s more, rate cuts by Bangko Sentral ng Pilipinas aren’t the risk-on signal investors assume. The Philippines, remember, is still stuck with the same political uncertainty and policy drift that slammed both stocks and the peso in 2018.



Category: Philippines

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