Hedge funds bullish on the Philippines as Duterte wins election

[MANILA] For hedge funds investing in Philippines shares, Rodrigo Duterte's landslide victory in the country's presidential election may represent a buying opportunity.

While the controversial mayor of Davao City has won votes with his tough talk on fighting crime, he has yet to prove his economic credentials and win investors sidelined by a lack of clarity about his plans for managing the economy. The peso has weakened about 2 per cent against the dollar in the past month, while the Philippine Stock Exchange Index dropped for a third consecutive week.

No reason to panic, say hedge funds such as Civetta Capital and F&H Fund Management. They point to strong economic fundamentals in the Southeast Asian nation the World Bank describes as Asia's rising tiger. The government forecasts the economy will expand more than 6 per cent this year.

"Politics in Southeast Asia are always volatile and unpredictable," Alex Klein Tank, a managing director at Bangkok- based Civetta, said. "But we stick with the fundamentals and I don't think the growth trajectory on the Philippines will be derailed by the election."

Civetta's long-only equity fund has about 40 per cent of its portfolio invested in the Philippines. It holds shares of four companies: EEI Corp, a Quezon City-based construction company; San Miguel Pure Foods Co; 8990 Holdings Inc, a low-cost housing developer; and Xurpas Inc, a mobile e-commerce company, Klein Tank said in a telephone interview. The fund, which returned 15 per cent this year through April 30, may add to its holdings if there is weakness in coming weeks, he said.

"Foreign hedge funds get nervous, but things will go back to normal and countries like the Philippines will continue to grow," Klein Tank said.

While F&H takes into account the political situation in the Philippines, its investments are driven by fundamentals, chief operating officer Rebecca Walters said. The Singapore-based firm's Asia fund, which employs a long-short strategy, includes GT Capital Holdings Inc, an investment holding company, she said.

The fund was down 2.9 per cent this year to the end of April.

F&H is optimistic about "the resilient consumer demand, the need for infrastructure improvement and the overall prospects of the Philippines' economy in the future," Simon Deng, the firm's portfolio manager for Southeast Asia, said in an e-mail.

BLOOMBERG