/ AFP / KAZUHIRO NOGI (Photo credit should read KAZUHIRO NOGI/AFP/Getty Images)
Philippines President Rodrigo Duterte is getting ready for yet another flip-flop in articulating his county’s South China Sea policy. This time around he is about to re-align with the US.
Last month, Manila filed a protest before the Chinese Embassy over Beijing’s reported military buildup on the islands and reefs in the contested Spratly Islands in the South China Sea.
The protest comes one month after President Duterte promised to respect defense treaties with “friend” and “ally,” the United States, and two months after Manila warmed up to Beijing and announced a “divorce” from Washington.
Investors get unsettled with high profile flip-flops. They magnify political risks, which add to other investment risks. That’s especially the case for countries like Philippines suffering from persistent political instability since the fall of Ferdinand Marcos in 1986, as Ruchir Sharma observes in The Breakout Nations.
That’s why Philippines’ equity markets headed south after Duterte flip-flopped.
Fund
5-Day
3-Month Performance
6-Month Performance
ishares MSCI China (FXI)
1.16
-0.97%
3.54
iShares MSCI Philippines (EPHE)
-0.29
-2.75
-13.34
iShares MSCI Emerging Markets (EEM)
1.88
0.96
4.10
Market Vectors Vietnam ETF (VNM)
1.79
-5.85
-8.86
Source: Finance.yahoo.com 1/27/2017 
What made Duterte change his mind this time around? 
It’s hard to say. One plausible answer is China’s ongoing aggression, telling America to stay away from its “own” South China Sea. And sending a warning message to Taiwan in the form of a naval force demonstration – recently, a group of Chinese warships that included the country’s only aircraft carrier made its way to the South China Sea after passing south of Taiwan in a “routine” exercise.
Another plausible answer is a recent survey, which showed 84 percent of Filipinos want Philippine President Rodrigo Duterte to assert his country’s rights over its territories in the South China Sea.
A third plausible answer is a new administration in Washington, which has promised to contain China’s South China Sea ambitions.
Keeping a record on Philippines’ President’s position on South China Sea disputes is a rather tricky task. Duterte’s flip-flops can be traced back to last July after an international arbitration ruling, which found that China has no historic title over the waters.
That was a big victory for both the Philippines, which had filed the arbitration case, and its close ally the US, which wants those waterways to be an open sea.
One month later, Duterte sent a loud and clear message to China: stay away from our territory or else face the possibility of a “bloody” confrontation. That was followed by the Duterte decision to side with China in the dispute, and seek a “divorce” from the US.
Apparently, Beijing had offered Manila something Washington couldn’t: the promise of peace and a partnership for prosperity.
That’s a doubtful proposition, however.  Things get more complicated by the week in the region, and Manila’s flip-flops continue.
In the meantime, Philippines’ equity markets are in for further turbulence.