The Philippine peso tumbled to a more than seven-year low against the dollar this week, as investors voted with their feet on the country's intemperate president.
The archipelago's currency has swooned since September 6, when Barack Obama cancelled a meeting with Philippine President Rodrigo Duterte after Duterte used a derogatory term to describe the US president. On Monday the greenback fetched as many as 48.457 Philippine pesos, the highest for the pair since the depths of the global financial crisis in 2009.
In a Tuesday note, Mizuho cautioned that "while investors were initially willing to discount the new president's sometimes shocking rhetoric as merely for guffaws to a domestic audience, things took a sharp turn when his acerbic retort to Obama led to real consequences."
The Philippine peso recovered somewhat from its lows in Tuesday's trade, with the dollar fetching around 48.235 pesos, but analysts attributed that move to a general risk-on in markets after the Democratic candidate for US president, Hillary Clinton, was widely seen as having bested her GOP opponent Donald Trump in the first debate.
But analysts expected the peso's reprieve would be short-lived.
"In the near term, we could well see further pressure on the Philippine peso as sentiment is quite sour as a result of concerns over President Duterte's comments and behaviour," Khoon Goh, senior foreign-exchange strategist at ANZ, said on Tuesday. "We've seen foreigners selling out of the Philippine equity market on a consistent basis in the past month or so."
The firebrand Duterte, who is often compared with Trump, has sparked concerns in markets not just for his erratic outbursts, which have included threatening China with a "bloody" confrontation over disputes in the South China Sea, but also for pursuing a "law-and-order" agenda that has been been blamed for a surge in extra-judicial killings. The parliament has also been told of murders allegedly ordered by the Philippine president during his tenure as mayor of Davao city.
Duterte has denied the allegations, but has also made comments indicating he condoned both those murders and ones since he took the country's top office.
More than 3,800 people have been killed in Duterte's crackdown on drugs since the June 30 inauguration, Reuters reported last week.
That spurred ratings agency Standard & Poor's to make an unusual inclusion in a statement last week affirming its BBB long-term rating on the country: "We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to the legitimacy of the judiciary, media, and other democratic institutions. When combined with the president's policy pronouncements elsewhere on foreign policy and national security, we believe that the stability and predictability of policymaking has diminished somewhat."
The ratings agency's warning spooked markets, Joey Cuyegkeng, senior economist for Asia at ING, said in a note Monday.
"This concern was also more or less a concern among market participants and investors," he said. "But to make such concern an 'official concern' reinforced market's guarded disposition. The government response to this warning was equally disconcerting for markets."
Duterte reportedly responded last week with an profanity-laden speech complaining about ratings agencies and promising to create alliances with China and Russia.
On Tuesday, Duterte repeated his pledge to shift his country's diplomatic focus, saying that he would create "so many new alliances," Reuters reported. But that coincided with the cancellation of a trip to China by special envoy and former Philippine leader Fidel Ramos, which had been aimed at repairing the relationship with Beijing, Reuters reported.
ING's Cuyegkeng said more weakness in the peso was possible, noting that Monday's fall came despite the central bank keeping policy on hold last week, which should have supported the currency.
Other analysts also pointed to Duterte's policies as driving the currency lower.
The law-and-order drive in particular has spurred the rapid selloff, noted Mitul Kotecha, head of foreign exchange strategy for Asia Pacific at Barclays, although he added that some of the move could be attributed to profit-taking after the Philippines became a favoured market earlier in the year. But while Kotecha said the rapid drop in the peso was likely overdone, he did expect more selling, just on a more limited basis.
The currency also took a knock from outflows from the country's stock market, with foreigners turning net sellers for the past six weeks, as well as Monday and Tuesday of this week. Even as other Asia markets retraced early losses to close higher on Tuesday after Clinton's debate victory, the Philippine-PSEI finished down 1 per cent.
Not everyone, however, has laid the Philippine peso's weakness at Duterte's door.
Amando Tetangco Jr., the governor of Philippine central bank, Bangko Sentral ng Pilipinas, attributed the weakness to uncertainty over when the US Federal Reserve would increase interest rates, an action which would likely strengthen the dollar and weaken emerging market currencies, the Philippine Star reported on Tuesday. He also cited strong demand for dollars for corporate purposes, the report said.