The President of the Phillipines’ flip-flops over the South China Sea disputes have been crashing the country’s equities market, which is down 7.2 percent in the last month. Apparently, investors are concerned about the political and economic future of that nation, and the prospects for on-going economic integration of the region and the global economy — most notably China, which needs a market frontier for its manufacturing products.
(NOEL CELIS/AFP/Getty Images)
That’s why the Philippines market sell-off has touched other markets in the region, like Vietnam’s and China’s own market. 
Fund1-Month Performance12-Month Performance
ishares MSCI China (NYSE:FXI)-3.78%-6.87
iShares MSCI Philippines (NYSE:EPHE)-7.10-1.22
iShares MSCI Emerging Markets (NYSE:EEM)-3.471.68
Market Vectors Vietnam ETF (NYSE:VNM)-6.10-19.25
Source: 11/2/2016
Disputes in the South China Sea began as a regional tug of war between China and several neighbors, but they quickly turned into a showdown of economic and military power between China and the US, with each country eager to write its own navigation rules for the region.
Two years ago, China raised tensions by building artificial islands in the South China Sea. America countered that move by expanding its naval presence in disputed waters, and by advancing its missile capabilities in South Korea.
Then, China raised the stakes further, announcing that it would send nuclear submarines into the area to “deter” US presence.
Last July came an international arbitration ruling, which found that China has no historic title over the waters of the South China Sea.
That was a big victory for both the US and Philippines, its close ally, which had filed the arbitration case.
Nonetheless, Philippines’ President Rodrigo Duterte decided to side with China on the dispute, and seek a “divorce” from the US.
Apparently, President Duterte thinks that his country is better off appeasing rather than confronting China. But investors think otherwise, at least for the time being – and as they count their losses.