Top Four Threats To Duterte’s Strong Economy

&l;p&g;&l;img class=&q;dam-image bloomberg size-large wp-image-41695285&q; src=&q;×0.jpg?fit=scale&q; data-height=&q;639&q; data-width=&q;960&q;&g; . Photographer: Veejay Villafranca/Bloomberg

The Philippines is enjoying a strong economy under President Rodrigo Duterte, growing mostly in the range of 6-7% annually, compared to the range of 5-6% under the previous administration.

GDP Annual Growth Rate in the Philippines averaged 3.72% from 1982 until 2017, reaching an all-time high of 12.40% in the fourth quarter of 1988 and a record low of -11.10% in the first quarter of 1985,&a;nbsp;according to&a;nbsp;&l;a href=&q;; target=&q;_blank&q;&g;Tradingeconomics&l;/a&g;.com.

This means that Duterte&a;rsquo;s economy is growing almost twice as fast as its long-term average growth rate.

The trouble is that these high growth rates may not last, due to Philippines&a;rsquo; growing dollar denominated debt, which places the country among the world&a;rsquo;s &l;a href=&q;; target=&q;_blank&q;&g;most&l;/a&g; dollar-denominated debtors.

That exposes the Philippines to a significant US interest rate risk, as has been the case with other emerging markets like Turkey and Indonesia&a;mdash;all three countries have seen their equity markets dropping in the last three months, as US interest rates climbed.

&l;/p&g;&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td width=&q;290&q;&g;&l;span&g;Fund&l;/span&g;&l;/td&g;

&l;td width=&q;174&q;&g;&l;span&g;3-Month Performance&l;/span&g;&l;/td&g;

&l;td width=&q;159&q;&g;&l;span&g;12-months&l;/span&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td width=&q;290&q;&g;&l;span&g;iShares MSCI Philippines (EPHE)&l;/span&g;&l;/td&g;

&l;td width=&q;174&q;&g;&l;span&g;-12.57%&l;/span&g;&l;/td&g;

&l;td width=&q;159&q;&g;&l;span&g;-11.20&l;/span&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td width=&q;290&q;&g;iShares MSCI Emerging Markets ETF (EEM)&l;/td&g;

&l;td width=&q;174&q;&g;&l;span&g;-4.99&l;/span&g;&l;/td&g;

&l;td width=&q;159&q;&g;&l;span&g;15.56&l;/span&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td width=&q;290&q;&g;iShares MSCI Indonesia ETF (EIDO)&l;/td&g;

&l;td width=&q;174&q;&g;&l;span&g;-16.34&l;/span&g;&l;/td&g;

&l;td width=&q;159&q;&g;&l;span&g;-8.01&l;/span&g;&l;/td&g;


Source: 5/4/2018

Then there&a;rsquo;s corruption&a;mdash;the usual killer of emerging market growth — which is getting worse under Duterte, with the country dropping 10 notches in the 2017 Corruption Ranking&a;nbsp;&l;a href=&q;; target=&q;_blank&q;&g;published&l;/a&g;&a;nbsp;recently by Transparency International.

That&a;rsquo;s on top of six notches it dropped in 2016, which had already pushed the country closer to highly corrupt Asian countries like Pakistan, and far below countries like Singapore and New Zealand that are almost corruption free.

&l;!–nextpage–&g; And there are Duterte&a;rsquo;s foreign policy &l;span&g;flip-flops over the South China Sea disputes. President Duterte thinks that his country is better off appeasing rather than confronting China. But investors think otherwise, and that could explain why the Philippines equity markets have missed out on the recent emerging market rally&a;mdash;not a good sign for the country&a;rsquo;s future economic growth.&l;/span&g;

Meanwhile, Duterte&s;s hard tactics&a;nbsp;are pushing&a;nbsp;the Philippines to a&a;nbsp;situation&a;nbsp;it doesn&s;t want to be&a;nbsp;in: a divided country at the brink of civil war, another killer of emerging market growth.

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