Maybank FX Insight - PHP: Election Jitters Weigh - 6 May 2016

       PHP: Election Jitters Weigh

      There is increasing jitters over the upcoming presidential election on 9 May as the economic policies of the current front runner in the presidential race - Davao Mayor Rodrigo Duterte – remain unknown. Our analysis showed that there is a tendency for equities to be sold-off in the lead-up to the elections and for at least another six months after the elections as a result of the uncertainty surrounding the policies of the incoming president.

      We continue to expect the USDPHP to climb higher from current levels on portfolio outflows as a result of this election jitters. Since Apr till today, foreign investors have sold off a net USD37.59mn of equities compared to the purchase of a net USD203.86mn in the Mar. In contrast, demand for government debt appears to be mixed as seen in the yields with the 1M, 6M, 3Y, 4Y and 7Y all lower while the 3M, 1Y, 2Y, 5Y, 10Y and 20Y were higher.

      The strong economic fundamentals to date should allow the BSP to keep policy rates steady for the most part of the year. Persistent current account surpluses and economic growth outperformance (above 5%) as well as the implementation of the interest rate corridor (possibly by 2Q) to allow for more effective transmission of the policy rate should allow central bank to stand pat on the policy rate steady in the near-term. This should provide the PHP with some support for the year.