Regardless of winner, the elections won't matter to the stock market

MANILA, Philippines — When Rodrigo Duterte was announced as the new president on the night of May 27, 2016, a Friday, the bellwether Philippine Stock Exchange index (PSEi) closed higher by 0.71% the next Monday. Pundits at the time did not attribute the main index’s gain to Duterte’s victory, saying the movement was mainly driven by news of a massive telecommunication asset buyout deal involving three blue chip stocks.

Generally, investor sentiment when buying and selling shares is very sensitive to major domestic and international developments. And this year’s presidential elections would come at a very difficult and crucial time for the Philippines amid a once-in-a-lifetime pandemic that has battered the economy, which is yet to regain its pre-crisis vigor. Over two years into the pandemic and many businesses are still struggling to recover while millions of Filipinos remain jobless — creating a very daunting task for the next Philippine leader.

With so much at stake for the Philippines, are the elections in May going to be a major driver at the stock market this year? While it’s easy to speculate, a short answer from analysts is this: election-related developments may move share prices, but just a little bit as was the case in the past.

The market and past elections

For April Lee-Tan, head of research for publicly-listed brokerage COL Financial, elections are “surprisingly a non-issue” for the stock market.

Even so, Tan believes the market “prefers a particular candidate”, although the focus is still on earnings. “If the winning candidate can allow profits to grow, then the market will still go up," she said.

Data compiled by Philstocks Financial Inc. showed the local bourse outperformed whenever the Philippines elects a new president, which only happens every six years. At the same time, the sub-indices had stellar runs in past election years, led by the mining and oil counter. The services sector, however, underperformed during election years, even incurring losses when the country was electing a new president.

Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp., said "there is a sense of optimism" investors regardless of who would win the race to Malacañang. This, he said, is mainly because both household consumption and government spending are typically high during election years.

But while there had been an uptrend in previous election years, the gains in 2022 may not be large according to Luis Limlingan, head of sales at local brokerage Regina Capital.

"Historically, the market usually trends higher during an election year, with the uptrend getting sustained until the proclamation of the new President. However, the gravity of the positive election-related push to the market wouldn't be as large as it used to be amid the uncertainties brought by the pandemic and the brewing geopolitical tensions abroad between Russia and Ukraine should it persist for the next few months," Limlingan said.

Apart from the prospects of huge returns to their portfolios, what is important for investors, Limlingan said, is the conduct of a clean and honest election as it would create political stability.

"Looking back, the market's performance does not seem affected by whoever's running for the presidency. What the market gives more bearing to is the election process itself, whether the election is successful and peaceful or not," he said. — Infographic by Philstar.com/Jazmin Tabuena