Asia’s Worst Stock Market Looks for Reopening Cues From Duterte

(Bloomberg) -- Asia’s worst stock market is looking for a catalyst to spark a recovery, and traders are banking on Philippine President Rodrigo Duterte to spell out a plan to further reopen the economy when he delivers his annual speech to the nation on Monday.

Investors are also hoping for a fiscal stimulus to help lift the economy out its deepest recession in more than three decades, according to analysts and money managers. Government spending is key to averting a long-lasting crisis as the coronavirus ravages the global economy, they said.

“Investors would like to see clarity and resolve,” said Julian Tarrobago, who helps manage $2.3 billion as head of equities at ATR Asset Management Inc. in Manila. “Fiscal stimulus will help reduce the likelihood that the economic challenges will evolve into a full blown financial crisis.”

While the Philippine Stock Exchange Index has rallied 30% since the low in March, it’s still the worst performer in Asia this year with a 23% loss. The rally has stalled amid escalating Covid-19 cases and as investors brace for sharper second-quarter earnings decline.

Quarantine

Metro Manila is still under quarantine restrictions including a curfew, with many businesses shut or with reduced operations. Millions of jobs have been lost and the government has already boosted spending to a record to support the economy. Still, Philippine fiscal stimulus is among the lowest in Asia at 4.4% of gross domestic product, according to Maybank Kim Eng estimates.

Duterte’s economic team is pushing for a stimulus that will cut corporate taxes and rationalize incentives. Lawmakers, meanwhile, want to give wage subsidies and cheap loans.

Read: Philippine Manufacturers Call for Looser Quarantine Restrictions

What matters to markets is additional steps are taken to arrest the economy’s slide into a deeper hole, according to Robert Ramos, head of trust and investment group at Rizal Commercial Banking Corp. in Manila.

“We should do something,” he said. “There are benefits to promoting consumer spending and having more funds in the system.”

Stocks

Since Congress was restored in 1987, the benchmark PSEi has declined two-thirds of the time on the day of the president’s speech. It gained almost 60% of the time the day after.

“The market is waiting for the next fiscal stimulus and a more decisive Covid response,” said Cristina Ulang, head of research at First Metro Investment Corp. in Manila. “You can’t have a strong recovery without these two. The absence of one or the other would mean weak recovery.”

The peso, which traded at 49.34 per dollar on Friday, climbed to its strongest level since November 2016 this week as it benefitted from weak imports. The currency will probably trade at a range of 48.75 to 49.25 per dollar for the rest of 2020, according to Roland Avante, president and chief executive officer of Philippine Business Bank.

Traders in local bonds, meanwhile, will be mindful of a stimulus plan that will involve more debt sales and a wider budget deficit. Philippine peso bonds are among the top performers in emerging markets this year, advancing 15%.

©2020 Bloomberg L.P.