PHL to continue attracting investors under Duterte

In a Philippine Strategy Flash, analysts from J.P. Morgan Securities noted the “absence of any drastic shifts” in the eight-point economic agenda presented by the transition team of the tough-talking Davao City mayor.

The incoming president’s broad economic agenda include further accelerating infrastructure spending and easing foreign ownership limitations and expanding the conditional cash transfer program.

“The absence of any drastic shifts is encouraging, in our view,” read the May 12 research note furnished to the government’s Investor Relations Office.

“We believe that financial markets will welcome the explicit commitment of the incoming administration in keeping the current macro-economic policies, particularly its focus on infrastructure.”

J.P. Morgan Securities also found Mr. Duterte’s focus on grassroots development “laudable” because inclusive growth has been a “persistent problem” in the Philippines.

“It also helps that the new government is cognizant of the need to maintain fiscal discipline despite its goal of making income tax more progressive. We think this should assuage concerns about (Mr.) Duterte’s lack of clarity on his economic platform.”

In the Asia Macro Strategy Weekly released on Friday, meanwhile, economists from ANZ Research said the “Philippine political transition will be smoother than market expects.”

“Philippine asset prices had been underperforming in the lead-up to the election, as Duterte’s tough-talking personality provided for a sensational campaign and investors were unsure of his economic policies.”

As Mr. Duterte defines his economic thrust, however, the Philippine currency and equity markets have started to bounce back, the ANZ economists noted.

“The election uncertainty premium that had been priced in prior to the election is being unwound, leading to a rally in the [peso] and equity markets. Our [foreign exchange] strategists see scope for the [peso] to outperform in the near term, and recommended going long on the currency.”

ANZ Research cited Mr. Duterte’s pronouncement of relaxing foreign ownership restrictions, which is expected to increase the economy’s potential growth.

“The devolution of development beyond the National Capital Region will also likely be a focus over the next six years for (Mr.) Duterte,” the ANZ economists added.

EYE ON ECONOMIC TEAM
J.P. Morgan Securities and ANZ Research both deemed the appointment of Mr. Duterte’s economic team and Cabinet a critical move to watch for.

“Given the broad pronouncements, the appointment of a capable and experienced Cabinet and economic team, and eventually, the ability to execute, are the next milestones to watch for,” the analysts from J.P. Morgan Securities said.

Economists from ANZ Research, meanwhile, said: “The focus will now be on Duterte’s proposed line-up for his Cabinet, which will help shed light on his economic priorities.”

In its latest “On top of the data” report, HSBC Global Research noted the State of the Nation Address (SONA) will serve the incoming president an opportunity to highlight policy priorities.

Also, the executive department usually submits the upcoming year’s national expenditure program for Congressional scrutiny on the same day as the president’s SONA.

“It will be important to look out for continued growth in the infrastructure portion of the budget, towards and beyond the 5% of GDP (gross domestic product) benchmark,” read the HSBC report released on Friday.

The Philippines has “sufficient fiscal room” to spur additional growth while monetary policy settings remain broadly unchanged, according to HSBC Global Research.

The county’s gross domestic product (GDP) is expected to have grown by 7.4% in the first quarter of the year. HSBC Global Research, however, forecast weaker growths for the succeeding quarters.

ECONOMIC PRIORITIES
Meanwhile, a panel of industry leaders on Friday enumerated what they believe should be the economic priorities of the incoming Duterte administration, such as relaxing Constitutional restrictions on foreign ownership and comprehensive tax reform.

At the launch of the Oxford Business Group’s (OBG) report on Philippine development, Eleanor L. Roque, principal and division head of Punongbayan & Araullo, said Mr. Duterte should work on “comprehensive tax reform,” with an emphasis on lowering corporate and individual tax rates in line with the ASEAN average which ranged from 20% to 25%.

Ms. Roque also said that tax compliance must be made easier, adding the next administration should “take away any discretionary power from the tax examiner” to reduce the likelihood of graft and corruption.

On the need to lift Constitutional restrictions on foreign ownership, OBG managing editor for Asia Paulius Kuncinas said, “it’s really holding back a lot of capital” from entering the Philippines.

Francisco C. Sebastian, vice chairman of Metropolitan Bank & Trust Company, said for the past two years, foreign direct investments “has reached a very nice number of $6 billion”, which he admitted to be low compared to international standards but showed great potential.

Also, the panelists emphasized the need for the new administration to push for development in other regions, not just in Metro Manila.

Guillermo D. Luchangco, Chairman and CEO of ICCP Group, noted while many developing and developed countries have spread their economic activities outside their capitals, the Philippines has most of its businesses concentrated in Metro Manila.

“(Mr. Duterte’s) coming from the far South and has obviously felt the fact that Metro Manila, being the big capital, is always in a sense getting a lot of the attention,” Mr. Luchangco said.

Crisanto S. Frianeza, Secretary-General of Philippine Chamber of Commerce and Industry, said like the Aquino administration, the challenge for Mr. Duterte is to provide inclusive economic growth.

As published in Business World dated 13 May 2016 by Keith Richard D. Mariano