Duterte set to win Philippines presidency but loose policy agenda worries investors, markets

The Philippines is set to usher in regional mayor Rodrigo Duterte as its next president, according to early vote counts, but the headline-grabbing candidate's shaky policy agenda is likely to worry investors and markets.

Formal results aren't expected to come in until June but a ballot count by the Parish Pastoral Council for Responsible Voting (PPCRV)—an accredited watchdog—showed Duterte held 39 percent of votes cast as of Tuesday. Earlier in the day, candidates Mar Roxas and Grace Poe both conceded defeat to the Davao City mayor. Voters went to the polls Monday in what was seen as a tight race.

71-year old Duterte, who's nicknamed "Duterte Harry" and "The Punisher," is hugely popular for his sensationalist rhetoric on crime and inequality despite numerous politically incorrect comments on topics such as rape and extra-judicial killings.

Following the PPCRV's results, Duterte spokesman Peter Lavina announced a few policies on Tuesday that the presidential hopeful intended to implement, including moving the constitution to a parliamentary model and brokering peace treaties with militant groups in the southern Mindanao province, Reuters reported.

But Duterte was yet to present a concrete stance on serious issues such as economic reforms, strategists said.

"Rodrigo Duterte's election platform lacked any content regarding his economic policies, creating considerable uncertainty about his future reform agenda," Rajiv Biswas, Asia Pacific chief economist at IHS Global Insight, said.

That could see international investors and fund managers reduce exposure to Philippines equities and local government debt, which could weaken the Philippines peso against the greenback in the short-term, Biswas warned.

The currency was trading nearly 1 percent higher at 46.86 per dollar on Tuesday afternoon, while the benchmark equity index was up 0.4 percent.

Voters in the Philippines are set to elect Rodrigo Duterte, a tough-talking mayor of Davao City in Mindanao, pulling away from his rivals despite controversial speeches and little national government experience.
Dondi Tawatao | Getty Images
Voters in the Philippines are set to elect Rodrigo Duterte, a tough-talking mayor of Davao City in Mindanao, pulling away from his rivals despite controversial speeches and little national government experience.

Filipinos were likely attracted to Duterte for his views on security and the current lack of order and rule of law in the country, not for any planned reforms, explained Aim Sinpeng, lecturer at the University of Sydney.

"For them, the tough-talking, non-apologetic and crass style of Duterte are actually good attributes in addressing the country's perennial problems of crime, illicit drugs, corruption and inequality," Sinpeng said.

Investors, on the other hand, were more keen to see a continuation of outgoing President Benigno Aquino's good governance policies, observed Alfred Dy, CLSA's head of Philippine research.

Initial reservations could, however, be dispelled by Duterte's cabinet appointments.

"If Duterte appoints a strong economic frontbench with well-respected economists with a strong track record, this could reassure investors and restore confidence in the medium-term outlook for the Philippines economy," Biswas noted.

Duterte has already floated names of possible cabinet members, notably childhood friend and ex-Cabinet Secretary Carlos Dominguez, who served under former presidents Corazon Aquino and Fidel Ramos, for the role of finance secretary, local media reported this week.

Policy flip-flopping

In the geopolitical realm, Duterte has issued seemingly contradictory statements on the South China Sea territorial dispute between Manila and Beijing. Both countries lay claim to the resource-rich Scarborough Shoal, known in China as Huangyan Island, as well as the Spratly Islands, known in China as the NanSha Islands.

Under President Aquino, Manila filed a claim to the islands with the Permanent Court of Arbitration in The Hague in 2013, but China has so far rejected the court's authority.

In April, Duterte said he would ride a jet ski to the Spratlys and erect the Filipino flag, ABS-CBN News reported. But earlier this month, he said he would hold bilateral talks with Beijing if current multilateral talks don't resolve the matter within two years. This was followed by a statement on Monday that he would commit to multilateral negotiations.

Trading the outcome

"We'll only find out how good the president is once he assume office. If he can execute on the [economic] growth story, then I think you have to be long on the Philippines," said CLSA's Dy.

Dy recommends investors to focus on the country's banking sector in particular.

"The Philippines has one of the least-geared banking sectors in Asia. We have an early infrastructure cycle story so if we get that story correct, there's going to be a lot of leveraging happening and that's where the banks come in."

He also recommended companies with an infrastructure tilt, such as Ayala Corporation, citing its sound management and strong balance sheet.

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