It's the economy: Duterte not main cause of Philippines market selloff

Tue Oct 4, 2016 5:04am EDT
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By Vidya Ranganathan

SINGAPORE (Reuters) - Philippine markets have been heavily sold down since July, primarily for economic reasons, not the festering row between new President Rodrigo Duterte and traditional ally the United States over his war on drugs, money managers say.

A slowdown in remittances from Filipinos working overseas, which have historically been a big driver of growth in the Southeast Asian nation, is a cause of concern.

For bond investors, a bigger concern is the heavy correlation between Philippine bonds and U.S. Treasuries, and the potential for Philippine bond prices to drop as market participants prepare for the Federal Reserve to raise its near-zero rates.

"Everybody's pointing to Duterte," said Erwin Balita, a fund manager at BPI Asset Management in Manila. "But for me, it’s really the fundamentals of the country. The drop in remittances is a big game changer," he said. BPI manages around 700 billion pesos ($14.5 billion) in the Philippines.

The stock market .PSI, one of Asia's outperformers in 2015, has fallen 4 percent since late July. In the same period, MSCI's Asia ex-Japan index .MIAPJ0000PUS has risen 5.3 percent.

The peso has borne the brunt of the exodus of foreign investment and is down 5 percent against the dollar since July. It is down 2.4 percent this year, making it the worst performing currency in the region after the yuan.

Yields on 15-year dollar bonds issued by the Philippine government, one of the most liquid on the market, have risen 17 basis points since July.

The Philippines is one of Asia's most active issuers of U.S. dollar-denominated bonds. With Asia's second-highest growth rate, it has been a haven for yield-hunting foreign investors over the past couple of years.   Continued...

Applicants look at job offers displayed on a glass window of a recruitment agency in Manila in this October 9, 2010 file photo.   REUTERS/Cheryl Ravelo/File Photo