Philippine Strategy:A clear front-runner has emerged,but let’s not be too hasty

Event

    With presidential elections less than a week away on May 9, the most recentnationwide surveys have shown widespread growing support for RodrigoDuterte as a clear front-runner to win the presidency. This was mirrored byour own proprietary Macquarie consumer survey. However, we cite severalreasons why we think it is premature to conclude on the election result.

    Impact

    A sizeable lead for Duterte in several surveys, including our own. Thelatest Pulse Asia survey (April 19-24) showed Duterte getting 33% of the vote,well ahead of Grace Poe (22%), Mar Roxas (20%), and Jejomar Binay (18%).

    Meanwhile the Social Weather Station (SWS) survey of April 18-20 also hadDuterte with a 33% vote. Poe was also second with 24%, Roxas third with 19%,and Binay at 14%. Finally, even our own proprietary consumer survey hadDuterte coming out on top with a comfortable margin, with 40% of the vote.

    Three reasons that point to a still-wide-open race: We, however, thinkthat it is still premature to declare a winner. First, surveys have had a mixedtrack record in predicting election outcomes, as seen in both the 2010 and2004 presidential elections. Aside from highlighting a very fickle electorate,whose preference can swing quite significantly in just a week, the surveyshave misread election outcomes in the past. Second, the Filipino electorate’stendency to do “command voting” adds uncertainty, and partly explains whythe surveys can turn out uneven in terms of predicting an outcome. Third andlast, there could be developments that can swing voter sentiment in a big way.

    A relatively higher-risk choice, should the trend continue. We thinkDuterte would be a relatively higher-risk choice among the leadingpresidentiables. While highly lauded for turning Davao City to a low-crime,progressive city, replicating this on a national scale, in our view, is a bigquestion mark. The campaign has also revealed a candidate that is a loosecannon in more ways than one. This could result in potentially more marketvolatility during his term.

    Outlook

    Despite the elections, our view on the Philippines is bullish as we think noneof the presidential candidates endanger the positive macro and the goodcorporate earnings growth in place. In fact, despite each candidate’srespective flaws, we think execution would be much better than what we haveseen under the outgoing President Aquino. Thus we maintain our overweightview on the country from a regional strategy perspective. We like MEG, RRHI,PGOLD, MER, MBT, SMPH, MPI, and AC, in that order, in the Philippines.