Presidential elections may spell fat Philippine stock returns

·4-min read
Residents pass by election campaign posters near a polling center in Manila, Philippines on Friday, May 6, 2022. The son of the late dictator Ferdinand Marcos Sr., Ferdinand Marcos Jr. and the current Vice-President Leni Robredo continue to lead against other presidential candidates as the country prepares to vote for its new leader next week. (AP Photo/Aaron Favila)
Residents pass by election campaign posters near a polling center in Manila, Philippines on Friday, May 6, 2022. The son of the late dictator Ferdinand Marcos Sr., Ferdinand Marcos Jr. and the current Vice-President Leni Robredo continue to lead against other presidential candidates as the country prepares to vote for its new leader next week. (AP Photo/Aaron Favila)

The eve of Philippine presidential elections could be a good window to plow money into the nation’s equities. In the six months following a presidential election, the Philippine Stock Exchange Index has given world-beating returns in four of the last five times there were polls to elect a new leader.

The Philippine Stock Exchange Index was up 3.4% six months after Rodrigo Duterte won in 2016, almost double the MSCI World’s rise in the same period. The gauge was up 38% at the six-month point after the 2010 vote and 17% after the 2004 election, about twice the global gauge’s gain in the same periods. A drop after the 1998 vote — in the aftermath of the Asian financial crisis and the election of B-movie actor Joseph Estrada as president— was the only time the Philippine index lagged its MSCI peer comprising both developed and emerging markets.

This upside bias could hold this year particularly if the election on Monday is free of irregularities and the new president names a credible economic team that fosters investors’ confidence, says Gerard Abad, chief investment officer at AB Capital & Investment Corp., adding stocks historically also gain in the year after the elections.

Former senator Ferdinand Bongbong Marcos Jr. gestures in his speech during a campaign rally for his presidential bid inside a sports arena in Valenzuela City, Metro Manila, Philippines on February 11, 2022. The son and namesake of the late Philippine dictator Ferdinand Marcos, Marcos Jr. currently leads the surveys together with the daughter of President Rodrigo Duterte, Davao City Mayor Sara Duterte as his running mate for the vice-presidential post. (Photo by George Calvelo/NurPhoto via Getty Images)
Former senator Ferdinand Bongbong Marcos Jr. gestures in his speech during a campaign rally for his presidential bid inside a sports arena in Valenzuela City, Metro Manila, Philippines on February 11, 2022. The son and namesake of the late Philippine dictator Ferdinand Marcos, Marcos Jr. currently leads the surveys together with the daughter of President Rodrigo Duterte, Davao City Mayor Sara Duterte as his running mate for the vice-presidential post. (Photo by George Calvelo/NurPhoto via Getty Images)

Ferdinand Marcos Jr. leads in most polls, with Vice President Leni Robredo considered by many analysts as the only other candidate who can pull out a victory.

Investors expect some near-term headwinds. A polarized political environment would be a distraction for the country’s new chief, who must deal with surging inflation, rising interest rates and fallout from the war in Ukraine.

“There is strong distrust on both camps that could create a volatile political landscape and rattle the market,” says Jonathan Ravelas, chief market strategist at BDO Unibank Inc., who expects the benchmark to drop to about 6,500 in the near term.

Abad said he raised the cash proportion of his portfolio to about 17% from 5% in the run up to the election, noting that “stocks correct when politics get ugly.” But more cash will also make it easier to pick up shares on the cheap if the results fuel exaggerated selloffs. He’s currently favoring mining firms because of higher metal prices and also likes the defensive properties of the energy and telecom sectors.

Philippine Vice President and presidential candidate Leni Robredo shake hands with supporters during a campaign rally in Manila, Philippines, April 22, 2022. REUTERS/Eloisa Lopez
Philippine Vice President and presidential candidate Leni Robredo shake hands with supporters during a campaign rally in Manila, Philippines, April 22, 2022. REUTERS/Eloisa Lopez

“While a big part of the correction is due to threats of higher inflation, weaker peso and higher interest rates, the election is adding to the market weakness,” Abad says. “The next president is getting a tougher economy and a harder fiscal position than what Duterte inherited.”

Abad says investors may be lured back by economic reopening plays. His year-end target for the stocks benchmark is 7,800-7,900 — or as much as 15% higher from the current level. Potential fallout from the election is one of the reasons he lowered his 8,000-8,200 original target.

Political uncertainty has prompted some businesses to put decisions on hold. Metro Pacific Investments Corp., for instance, is yet to give its earnings guidance as the election will affect ventures such as toll roads, power projects and water distribution. Meanwhile, foreign investors have withdrawn net $274 million from Philippine equities this year.

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