[MANILA] The honeymoon is over for Philippine stocks.
Equities in the South-east Asian nation, which soared to a 15-month high after Rodrigo Duterte won the presidency in a landslide election in May, sank last month to cap the region's steepest drop.
The Philippine Stock Exchange Index has erased all of its rally since Mr Duterte took office in June, while valuations are still near the most expensive level since 2013.
Foreign fund managers pulled money out of the Philippines last week at the fastest pace since September, helping to accelerate the stock slide. While they've still added to investments in the nation's US$276 billion equity market under Mr Duterte, the shift in sentiment presents a challenge for the blunt and unpredictable leader as he tries to deliver on his economic growth pledges.
"It's not a cheap market and as a fund manager I can't find a good stock to buy," said Singapore-based Raymond Kong, who oversees US$2.5 billion at One Asia Investment Partners.
"I have made good money in the Philippines, took some profit and moved to other Asean markets that give me more value and growth." The Philippine gauge rallied 33 per cent from a January low through the July 21 peak as Mr Duterte vowed to cut corporate taxes, relax business restrictions and ramp up infrastructure spending, while talking tough against crime, corruption and vice.
Even after August's 2.2 per cent slide, the equity measure is still up 12 per cent this year. The Philippine peso, meanwhile, had the best performance among Asian currencies in August.
Foreign investors, who pumped US$1.3 billion into the stock market this year through Aug 11, have taken some money off the table. After a 12-week stretch of purchases, overseas investors have withdrawn US$248 million since the middle of August, closing the month with US$34 million in outflows, the first in four months.
The equity index is valued at 18.7 times 12-month projected earnings, near the most expensive level since May 2013.
"A lot of the good news now is in the price," said Steve Brice, Singapore-based chief investment strategist for wealth management at Standard Chartered Plc.
"That's why we're seeing the stock market taking steps back. We've come a long way. We're doing really well. What's the next catalyst for giving even better from our perspective?"
Some of the declines in Manila can be attributed to a broader pullback. Emerging-market equities came under pressure in the second half of August as investors weighed the chances of higher US interest rates ahead of comments from Federal Reserve Chair Janet Yellen.
The MSCI Emerging Markets Index dropped 2.1 per cent from Aug 18 when it reached the highest in more than year.
Some investors speculate about the impact of Mr Duterte himself on the markets. Finance Secretary Carlos Dominguez has said the president is pursuing policies that will create jobs, boost growth and lead to higher credit ratings. Yet Mr Duterte has also begun crackdowns on major industries in the Philippines.
The president has gone after miners in the world's biggest nickel ore supplier. The government's audit of standards in the mining sector has led to shutdowns of several mines as he seeks to ensure that all of them comply with environmental and welfare standards.
He then zeroed in on gambling, ordering a stop to online gaming that sent the shares of PhilWeb Corp and Leisure & Resorts World Corp slumping. He has since said he may reconsider provided they pay the right taxes and follow the prescribed zoning rules.
Meanwhile, about 2,000 people had been killed in Mr Duterte's campaign against illegal drugs, which has raised concerns from the United Nations and added to anxiety for some investors.
"It's unclear how the new president is going to behave going forward," said Mark Mobius, executive chairman of Templeton Emerging Markets Group who is least bullish on the Philippines.
"If there is a feeling that the rule of law is going out the window in the Philippines, then this would not be good news. But the jury is still out." Not everyone is worried.
Economic activity in the Philippines remains robust, and Mr Duterte should be able to deliver results that would bolster investor confidence, said Soo Hai Lim, investment director at Baring Asset Management (Asia) Ltd in Hong Kong.
"There's sufficient tailwinds for the economy," he said. "For the next 12 months, Duterte should be able to deliver what the investors would like to see."
Gross domestic product increased 7 per cent in the second quarter, the fastest pace in three years, topping estimates and beating the first quarter's expansion. Mr Duterte's administration sees a steady acceleration in growth to 7 per cent to 8 per cent in the medium term.
"I'm structurally positive on the Philippines and have a long-term strategic overweight," said Alan Richardson, a Hong Kong-based fund manager at Samsung Asset Management Ltd.
"Flow data is hot money reacting to high-frequency news flow such as US interest-rate policy. Government policy action will drive long-term fund flows because growth fundamentals with low inflation and low debt are the ultimate drivers."
Corporate earnings and economic growth were not spectacular enough to support the rich valuations, said John Padilla, who helps manage about US$9 billion at Metropolitan Bank & Trust Co, the Philippines's third-largest money manager.
He said Metropolitan Bank moved the equity positions in its portfolio to neutral.
"For a time a lot of us thought the elevated valuation was the new normal and will be sustained," Mr Padilla said, but the data is giving investors reason to step back.
Nevertheless, he added, he's willing to give Mr Duterte a year "to get things running".