Philippine assets feeling strain from Cabinet shakeup — analysts

PHILIPPINE ASSETS are under pressure after a Cabinet revamp by President Ferdinand R. Marcos, Jr. to stem a corruption scandal rocking his government, adding another layer of uncertainty.

Most of the country’s dollar bonds fell, with the note maturing in 2035 sliding to the lowest since Sept. 5, according to data compiled by Bloomberg. The peso on Tuesday slipped 5.4 centavos to close at P58.985 against the dollar, while the benchmark stock index, already trading at multi-year lows, dropped 0.38% or 22.46 points to 5,756.66.

The Cabinet reshuffle comes as two Cabinet secretaries resigned amid allegations of corruption, marking the first direct hit on Mr. Marcos’ government from the multibillion-dollar flood graft scandal.

Finance Secretary Ralph G. Recto will become executive secretary, replacing one of the departing secretaries. Frederick D. Go will be the nation’s finance chief. Budget Undersecretary Rolando U. Toledo will step up to become officer-in-charge of the agency. It’s the second major reshuffle in Marcos’ Cabinet since he took office in 2022.

This is what analysts and economists say:

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics:

“It sounds from the reporting of this reshuffle that it was instigated by more heads rolling over from the fallout of the ICI’s (Independent Commission for Infrastructure ) anti-corruption drive, which will continue to keep political event risk fairly elevated in the short run, impinging on market sentiment with regards to Philippine assets.

“It’s obviously far too soon to say what the new Finance secretary will bring to the role vis-a-vis his predecessor, who remains in government in another capacity. What’s undeniable, though, is that the post-Covid fiscal consolidation plan continued to slip behind schedule under Recto’s stewardship, so any change — at all — would be welcome, as the status quo clearly wasn’t working.”

Philip McNicholas, Asia sovereign strategist at Robeco in Singapore:

“The reshuffle is interesting. It is unlikely to help sentiment, and the Philippines is a market that is running sizeable twin deficits. In that light, a negative response makes sense. President Marcos may be trying to minimize disruption to his broader macro agenda beyond the resignations by keeping key personnel within his inner circle. It is worth noting that the President initiated these investigations to investigate the misuse of public funds. So, at the margin, one could see it as a positive for governance.

“The market reaction strikes me as a knee-jerk response to the injection of uncertainty over who the possible replacements might be.”

Wee Khoon Chong, senior APAC market strategist at BNY:

“The reshuffling of cabinet is likely to add an additional layer of uncertainties and likely to exert downward pressure on the Philippine peso in the near-term.

“It raises the probability of a more aggressive rate cut by the central bank at December’s meeting. We are looking for 25 bps and won’t rule out for a possible 50 bps for a strong boost to stabilize sentiment.”

Matthew Ryan, head of market strategy at Ebury Partners Ltd:

“In the near term, we suspect that the ensuing uncertainty stemming from the re-shuffle could provide a mild drag on growth, particularly should it trigger a loss of investor and business confidence and weaker government spending. We could see an improvement in medium-term growth, however, should Go’s emphasis on business reforms and deficit reduction lead to increased FDI flows, lower borrowing costs and an improvement in the country’s credit ratings.

“Going forward, we may see a mild appreciation in the peso should Frederick Go maintain his track record of attracting foreign direct investment and improving trade corridors, while bringing down inflation and bolstering the Philippines’ credit position. This will, however, depend on the success of his reforms, and his ability to detract attention away from the recent corruption controversies.”

Toby Allan Arce, analyst at Globalinks Securities & Stocks:

“The latest Cabinet reshuffle in the Marcos administration, set against the backdrop of a widening corruption scandal tied to the flood control anomaly, underscores a moment of heightened uncertainty for the Philippine stock market. Investor sentiment typically weakens when political risk rises, particularly when issues touch the core of governance, transparency, and fiscal accountability.”

“The appointment of Frederick Go as Finance Secretary and the repositioning of Ralph Recto may help steady the leadership structure, but transitions of this magnitude often take time to dissipate uncertainty, especially when they occur amid an active investigation with significant public scrutiny. The peso’s weakness, sluggish third-quarter growth, and the stock market’s decline all reflect how investors are already pricing in governance-related risks.”

Jash Matthew Baylon, analyst at First Resources Management and Securities

“We think that the recent Cabinet reshuffle may affect the market as it may bring uncertainty on possible imposition of new policies affecting our economy as the reshuffling affects the Department of Finance.

“Investors may also remain on the sidelines while volume will still be subdued due to current political risk and instability, implying weak confidence.”

SB Equities, Inc.:

“The Philippines’ benchmark stock index may see a relief rally if selling pressure remains tepid.” — Bloomberg News