Investors 'fairly positive but vigilant'

September 26, 2016 News

Foreign investors are willing to take a chance on the Philippines even as President Rodrigo R. Duterte’s headline grabbing rhetoric may have increased the political risk of investing in one of Asia’s brightest spots. From languishing for decades as the "Sick Man of Asia," six years of political stability and unprecedented economic growth have transformed the Philippines into Southeast Asia’s economic star. But Mr. Duterte’s loose talk and confusing policy signals since he took office at noontime of June 30 hang like a dark cloud over the country’s growth prospects. The American Chamber of Commerce of the Philippines, Inc., as well as senior officials of the European Chamber of Commerce of the Philippines and the Nordic Chamber of Commerce of the Philippines, had warned that the Duterte administration’s bloody war against the illegal drug trade and -- at least for US businesses -- Mr. Duterte’s spat with US officials led by President Barack H. Obama could have ramifications in terms of attracting foreign direct investments from their respective countries.


For Michael Liu, senior vice ­president of Hong Kong­ based Portfolio Advisors, LLC, maintaining the country’s good image is important to drawing job­ creating investments, even as he cited the Philippines’ "very stable" democracy and Mr. Duterte’s strong mandate compared to that of his predecessors.

"Perception really does matter in creating an atmosphere, m appearing open to... inward foreign direct investment," Mr. Liu said, adding: "Saying the right things that are politically correct also matters."

Mr. Duterte, the tough­ talking former mayor of Davao City for two decades who had promised a "metamorphosis" after his inauguration, has grabbed the international spotlight for his outbursts.

Since he took office, he has threatened to pull the Philippines out of the United Nations, called US Ambassador to the Philippines Philip Goldberg a "gay... son of a whore" and swore similarly at US President Barack H. Obama, prompting Washington to call off the two leaders’ scheduled bilateral meeting during the 28th and 29th Association of Southeast Asian Nations Summit and Related Summits in Laos last Sept. 6­8.

Add to that his unclear signals on foreign policy (pushing the country closer to China while, at the same time, warning of a "bloody" fight should it invade Philippine territory), mining and online gambling. "Stability will be a plus point. Politics is not a decision­making point, but it’s a factor to consider [when making an investment]," International Finance Corp. Principal Investment Officer Ralph Keitel said.

The benchmark Philippine Stock Exchange (PSE) index -- a barometer of investor confidence -- has started to take a hit because of Mr. Duterte’s antics, prompting investors to evaluate the invest ­ ment­grade country’s risk premium. To be sure, the bellwether index had climbed 8.66% for the year as of Friday last week -- from a high year­to­date gam of about 16% recorded on July 21 -- but it had lost 3.11% for the quarter.


Foreign investors remain in net buying position at P5.84 billion in the quarter­ to ­date, with the year ­to­date tally at P36.33 billion, according to PSE data. Investors, SI/5 Investors, from Sl/1 Foreigners are imputing a political discount on the Philippine market despite strong fundamentals given the... noise in the Senate and [Mr.] Duterte’s anti­ West posturing," First Metro Investment Corp. (FMIC) Head of Research Cristina S. Ulang said. The PSEi may end the year at 7,800 on the conservative side, but may challenge 8,100 in a scenario of increased US Federal Reserve dovishness and more clarity on Mr. Duterte’s foreign policy, Ms. Ulang said. "We’re more conscious of the political landscape. Before, it’s a given, there is no political risk... It’s a change in policies that the market needs to adjust to. Whether positive or negative, you have to price that in," said Norman C. del Carmen, head of investments of China Banking Corp.’s Trading and Investments unit.


PSE Chief Operating Officer Roel A. Refran said the exchange has been receiving a growing number of queries from foreign investors over the past few weeks on "why markets are behaving the way they do."

"There is uncertainty in terms of messaging, but if you listen to the core message, it’s about security and addressing the drug problem. I think the noise surrounding that objective will probably die down as we end the first 100 days," Mr. Refran said.

Ayala Corp. Managing Director Paolo Maximo F. Borromeo said: "The general sense I get from talking to our investors is one that is fairly positive, but vigilant and conscious of potential changes or disruption in the economy."

But there are those who are willing to give Mr. Duterte the benefit of the doubt and take a bet on Asia’s fastest­growing economy next to China and India.

The outspoken President "hasn’t scared away long­term institutional investors," said William M. Valtos, Jr., senior managing director at ICCP Venture Partners.

ICCP is set to start marketing its sixth fund amounting to as much as $70 million, and indication points to "a lot of demand."


"The administration: it’s the early days for them. It will take some time to assess the business community and FDI activity. For us, we are generally positive on the country on the macro [level]," said Florian Marquis, senior vice president of Swiss private investment firm Partners Group.

"There is some rhetoric now that’s being thrown around and making the headlines but fundamentally, we’re not worried about that as an investor. A lot of that [are] headlines, not reality. We don’t expect any big fallout," said Emmet Thomas, partner and head of Asia at Tokyo -based private equity firm Advantage Partners.  

The last six months of the Aquino administration saw investment pledges jump by an annual 14.5% to P66.6 billion, reversing a 21% year-on-year drop to P58 billion recorded in 2015’s comparable six months, according to preliminary data from the Philippine Statistics Authority.

Foreign investors are attracted to the Philippines, having displayed above­average expansion underpinned by solid macroeconomic fundamentals at a time when growth in developed nations are stagnating.

"It has a stable currency, better macro growth and there’s a lot of potential in many different sectors," Advantage Partners’ Mr. Thomas said.

"The Philippines hasn’t gotten a lot of FDIs or many big investments, therefore, people like us can find early­stage investment opportunities and make good returns."

But foreign investors can tolerate only so much risk.  

"Fundamentals really need to be very positive to offset those political noise we are hearing," China Bank’s Mr. del Carmen said.

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