Just the other day, I ran into an officemate from way back. He knew that I was into finance. So the first question he asked is if the stock market is still attractive given the looming elections for President.
I had my views but wanted to first check the history books to see if the stock exchange index behaved in a particular way. To qualify this research I have data on the Philippine composite index only from 1958. This means that I can only correlate the index to as early as the 1961 elections.
It would appear that there is no discernible pattern with the behaviour of the PSEi vis-à-vis the elections for President. While the 1960s showed the index in negative territory in the year prior to the elections for President, the index was mostly upbeat in the year prior to the elections after the Marcos era.
There was only one election for President after the Marcos era when the index was in negative territory and this was in the 1998 elections. But even then, it was the Asian Financial Crisis and not the elections that led to the index falling into negative territory in the year prior to the said election.
So do the elections for President truly have an impact on the Philippine Stock Exchange Composite Index (PSEi)? In my honest opinion, I believe they do but, especially now, in a muted way.
It is not uncommon for investors to take a wait and see attitude when a new government administration will take over. Investors naturally want to assure themselves that the new administration will be friendly to the economy in general and business in particular. If it will be, this bodes well for corporate earnings and stock prices.
The great thing though since 1986 is that each new government administration, in its own way, worked towards the liberalization and strengthening of the economy. The country has progressed from so much institutionalization of reforms that signs are beginning to appear of the economy decoupling from politics. Just look at how the PSEi has continued to be stable despite the mud-slinging with and continuous criticisms of the current administration.
On top of this decoupling, foreigners have begun to take the Philippines as a serious investment destination. Not only has there been an increase in hot money flows into the country, we have also seen our net foreign direct investment at the highest in history.
And while hot money does not stay, local money has been harnessed by the financial services industry to offset the adverse impact of hot money outflows.
The average investor might agree with me but will probably be swirling in emotions that prevent him from taking advantage of opportunities in investing, especially in the wake of elections. That is why the better alternative is to rely on professional fund managers whose nerves of steel have been forged by as many bull runs as crises.
These fund managers reside in each pooled fund (e.g. variable life, mutual fund, and unit investment trust fund).
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