The iShares MSCI Philippines ETF (NYSEArca: EPHE) is one single-country emerging markets exchange traded fund ending 2016 with a whimper. In the current quarter, the lone Philippines ETF is down more than 16%, bringing its year-to-date loss to over 8%.
EPHE has tumbled nearly 24% from its third-quarter highs, putting the ETF in a bear market. Plus, the ETF labors 16% below its 200-day moving average.
Newly elected President Rodrigo Duterte is a big reason why EPHE is lagging its counterparts and why some global investors are skittish about Philippine equities.
Earlier this year, Philippine presidential race weighed on investor sentiment as Rodrigo Duterte had been tight-lipped on what he would do to support the economy, fueling uncertainty over the economic outlook. In the weeks before the election, investors dumped Philippine equities, expressing uncertainty over Duterte’s economic plans and lack of policy-making experience, reports Lillian Karunungan for Bloomberg.
With 2017 almost here, risks remain for the Philippines and EPHE. Political volatility is a driving factor behind those risks.
“…even with the high approval ratings, external and investor perceptions of his government will remain volatile. The reason is that while opposition to Duterte is in the minority and highly fragmented at both the popular and political level, the political anger within these groups for his administration’s policies is also high. Furthermore, Duterte appears more intent on isolating them, which is likely to increase the level of polarization next year. … the noise that the opposition can generate … will be significant and can noticeably affect perceptions of political risk and volatility,” according to a Teneo Intelligence note posted by Dimitra DeFotis of Barron’s.
Philippine stocks currently traded at a slightly higher multiple than their Thai counterparts and are about inline with Indonesia, two markets against which the Philippines is frequently compared.
A stronger U.S. dollar is helping Philippine stocks. Foreign remittances are now worth more when converted into pesos, helping boost the local economy.
Government spending is another theme to watch.
“Some of the higher spending of the next few years assumes that the government’s tax reforms will be approved by congress. However, the Lower House of Congress – from which tax revenue bills must originate by law – has not yet acted on the proposed reforms almost three months after receiving the draft from the executive,” according to the Teneo note seen in Barron’s.
For more information on the Philippine market, visit our Philippines category.