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Philippine stocks rise after elections, but worries linger

MANILA -- Philippine share prices rose sharply Tuesday, with investors apparently relieved by the largely orderly way in which the elections were conducted. Still, some market players remain nervous about the leadership change, and those jitters could weigh on the market for a while.

With his commanding lead at the polls, Davao Mayor Rodrigo Duterte is set to become the country's next president.

The Philippine Stock Exchange index opened lower Tuesday but ended at 7,174.88 points, up 2.6%, the biggest single-day jump since the 3.09% climb on Jan. 27.

Trading was suspended during voting on Monday. Tuesday's climb in Philippine stocks tracked the upward trajectories of major overseas markets the previous day. Japan's Nikkei 225 index rose 2.15% Tuesday on expectations that the yen may be weakened by an intervention. The Jakarta Stock Exchange Composite Index was up 0.29%, while Singapore's Straits Times and Thailand's SET indexes fell 0.9% and 0.18% respectively.

Investors pumping money into the Philippine market were pleased with how the election was conducted, said Luis Limlingan, managing director at brokerage Regina Capital Development. "Investors are ... relieved that the process was free from widespread cheating and that the main protagonist has a commanding lead, paving the way for a peaceful transition," Limlingan said.

The Makati Business Club, a group of Manila's top executives, said the election was "seen by many as highly credible, clean and honest."

As of 4:30 p.m. Tuesday, nearly 93% of the votes had been tallied and Dutere had a 15% lead over his closest rivals, who have already conceded defeat. The same day, Duterte's camp said it would work closely with the outgoing administration of President Benigno Aquino for a smooth transition. Duterte will take office on June 30 after being approved by congress by mid-June.

Duterte downplayed the election-related jitters that shook the Philippine stock market in recent weeks. "I don't care about the stock market; those are not real investments. Investors are just playing with money ... ," he told reporters in Davao on Monday. "What I want is hard investment."

Duterte has promised to lure job-generating investments by allowing greater foreign participation in local businesses. The Philippines limits foreign ownership of critical industries such as telecommunications, transportation and mining to 40%; Duterte said he wants to increase the ceiling to 70%.

On Tuesday, shares in Philippine Long Distance Telephone rose 2.05%, while those in Cebu Air, the operator of budget airline Cebu Pacific, climbed 1.56%

Duterte also plans to tweak the $20 billion-plus public-private partnership program so that infrastructure projects are awarded to the most suitable contractor rather than just the lowest bidder, as is the current practice, an adviser to Duterte told FT Confidential Research, an independent research service of the Financial Times.

Under the current PPP program, major companies such as Ayala Corp., San Miguel and Metro Pacific Investments bagged long-term toll road and railway contracts, among other deals. On Tuesday, shares in San Miguel dropped 0.82%, while those in Ayala and Metro Pacific rose 3.95% and 2.30%, respectively.

Duterte is also considering imposing a 1 a.m. curfew, including a ban on liquor sales after that time. Shares in LT Group, which owns major liquor company Tanduay Distillers, were unchanged Tuesday.

Duterte has been short on details when publicly discussing his economic policies, which has unnerved investors. He has vowed to bring drastic change, including shifting to a federal government, which he argued would make growth more "inclusive."

Gareth Leather, senior economist at Capital Economics, said Duterte's "victory represents a step into the unknown."

"His apparent lack of interest and knowledge on the subject suggests that economic reform is unlikely to be high up his list of priorities when he becomes president," Leather said. "The Philippines own history also shows how poor leadership and political uncertainty can hold back an economy," he added. "The key risk now is of history repeating itself."

In a note to clients, Maybank ATR Kim Eng said: "Until we get a clear picture of his economic team and his economic thrust, it is prudent to stay on the sidelines and wait for better buying opportunities."

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