Duterte’s win could lead to both opportunities and risks for Thai economy

While we are not certain when the outspoken and sometimes off-putting maverick president-elect will wage a war against drug dealers and criminals in the Philippines, as he has vowed, it seems that the financial markets exhibited a very cheerful reaction after he got elected.
The Philippine stock market, or PSEI Index, rose from 7,000 points to 7,500, or about 6 per cent, within a week after his victory.
The Philippine peso also strengthened from the depths of 47.3 per US dollar to the current level of 46.5.
Needless to say, the currency default swap of the Philippines, the country’s credit-risk meter, became more stable immediately after his election victory.
A sign of confidence? Perhaps, yes.
His drive against crime and illegal drugs gave him 15 million votes in this election, which accounted for 40 per cent of total votes cast.
Besides, all candidates offered him a hand of friendship and called for unity right after he won the presidential election.
The vote count and political harmony have already made the market believe that political risks in the Philippines are fading.
From the financial market point of view, the removal of political uncertainty leads to a happy ending.
We understand that the global markets like president-elect Duterte indeed.
Should the Thai market and businesses feel comfortable with him too?
In terms of financial market relationships, there are few interactions between Filipino markets and Thai markets.
The correlation between the stock exchange of Thailand and the Philippines over the last three years is as small as 0.01, meaning that movement in one market is really irrelevant for the other market. The unrelated signal is also repeated in the foreign exchange market.
Based on my observation, there is only a 50:50 chance to see co-movement between the Philippine peso and the Thai baht, while I detect that the baht moves together with the Singaporean dollar or Malaysian ringgit six out of 10 times.
So, we can expect very small spillover effects from their cheery financial markets.
Opportunities and threats really arise from their economy, in my point of view.
The Philippines is undeniably a fast-growing economy.
The 6.3-per-cent growth in gross domestic product, reported latest quarter, counted as the Asian top league.
For the next five years, the International Monetary Fund estimates the Philippine economy continuing to grow as fast as 6-6.5 per cent per year.
Would they face economy stagnancy due to the government transition and global economic slowdown? Very unlikely.
The Philippine economy has decent growth mechanisms.
Unlike China, whose government investment accounts for almost half of their growth story, or Thailand, an export-orientated economy, which is facing sluggishness in global demand, economic drivers in the Philippines are seven-tenths domestic consumption, with only 25-per-cent exports, contributing to GDP.
This portion indicates that the economy can grow typically by itself with minor need for external demand or government stimulus.
For Thai exporters, although the Philippines’ trade share is just around Bt5.2 billion or 3 per cent of trade volume last year, they are a top destination for the automobile and electronic industries.
Surprisingly, one-third of our motorcycle export destinations is the Philippines.
It’s not just a coincidence.
The demands for trade are real because local manufacturers cannot manage to produce enough quality products and quantities to match strong and sophisticated local demand.
However, the age of Dutertenomics may not be cheerful about all things.
Electronics and personal computer parts exporters have to be more careful.
While Benigno Aquino presided over stability and healthy gross domestic product growth for more than three years, Duterte is popular for business clean-ups and disenfranchising.
The victory of the populist Duterte can stop the lopsided success of the country under its outgoing president.
I don’t mean that Dutertenomics needs to be anti-business. However, as the mayor of Davao, we saw his city clean-up scrape some business activities including investment.
For that reason, it is not too pessimistic to fear that the elite who run the country’s leading business groups could feel less enthusiasm.
Why electronic parts?
From my perspective, they are used in general productivity and exports to the Philippines are as large as 15 per cent of total electronic export volume.
Any halt in factory production from incoming economic policies, if they exist, would surely be a fearful threat for our exporters. It might be too early to gauge all the economic consequences from Dutertenomics anyways.
For now, what we’ll see soon are more solid economics guidelines and we just need to prepare for the worst.
For the post-election rally not to fizzle out, Duterte needs to explain, gently and politely, how his Dutertenomics would really be.

Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives. Jitipol Puksamatanan is a global economist and currency strategist at TMB Analytics. He can be reached at [email protected]