Philippine stock market looks for reopening cues

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 today.

Investors are also hoping for a fiscal stimulus to help lift the economy out of 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 Mr Julian Tarrobago, who helps manage US$2.3 billion (S$3.2 billion) as head of equities at ATR Asset Management 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 per cent since the low in March, it is still the worst performer in Asia this year with a 23 per cent loss. The rally has stalled amid escalating Covid-19 cases and as investors brace themselves for a sharper second-quarter earnings decline.

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 per cent of gross domestic product, according to Maybank Kim Eng estimates.

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

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

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

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 has gained almost 60 per cent of the time the day after.

"The market is waiting for the next fiscal stimulus and a more decisive Covid response," said Ms Cristina Ulang, head of research at First Metro Investment Corporation 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 US dollar last Friday, climbed to its strongest level since November 2016 last week as it benefited from weak imports. The currency will probably trade at a range of 48.75 to 49.25 per US dollar for the rest of this year, according to Mr 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 per cent.

BLOOMBERG