Investors have learned to live with the country’s volatile politics but not with corruption, which the current revelations of endemic and massive budget pilfering, as well as the mismanagement of flood projects, are making capitalists uneasy while others have left.

For the private sector, governance is a significant issue, but not for government and the disconnect is driving away investors, causing concern among market analysts and economists.

Before the lid was blown off the flood control mess, market pundits were looking at the stock index hitting 18,000 this year, but the bets are now off, and instead investment funds are again skipping the country.

Those seeking to do business treat governance as a significant issue weighed against market earnings.

“Lack of governance and transparency is really what’s driving away foreign investors,” according to Marvin Fausto, president of COL Strategic Growth Fund.

Recent figures showed net foreign selling was at P41.9 billion, which is a strong signal of loss of confidence.

Using the standard metric of Price-to-Earnings (P/E), the stock market is currently at a significant discount that gets worse as the extent of the irregularities involving the highest levels of government is exposed.

Year to date, the Philippine Stock Exchange turnover is down by five to six percent.

“It doesn’t seem like much, but it just shows that we haven’t gone anywhere, with lots of foreign selling, but companies are still reporting solid earnings,” an analyst said.

The disconnect lies in the lost opportunity, since while companies continue to make money, their full potential is not maximized.

While the expectations at the start of the year, for instance, were 10-percent earnings, the market averaged six percent in the first quarter and three percent in the second quarter, or a downtrend.

Considering the higher risk, investors apply a slight discount to investments, even if the economy continues to be among the fastest growing in the region.

Investors consider how the government addresses the theft of public funds.

As a comparison, an analyst said the Korean stock exchange is up 30 percent since its government sentenced its president to jail for up to 25 years.

Investors put a specific valuation on countries that are not giving them good corporate governance because most report to their stockholders or other decision-makers about investing in a country where there is very low governance.

What may take the cake for investors is that senators and House members are implicated, indicating the brazen and endemic level of irregularities in government.

The implication is that those who have honest money to invest will consider the country to be weak in the implementation of the law.

The bright side, however, is that investors are pinning their hopes on reforms, particularly in the Department of Public Works and Highways.

One analyst said that when the ghost and shoddy projects are rehabilitated, it would mean infrastructure spending will again start flowing in the short term.

Oversight on the budget will also increase, as indicated by the errata that the House of Representatives will seek from the Department of Budget and Management on the National Expenditure Program.

Such silver linings are what investors, hot money, and long-term investors are looking for, as many think like the Chinese philosopher who said, “Where there’s crisis, there’s opportunity.”

The market expert believes that a withdrawal syndrome will happen, but he did not speculate on the extent of the detoxification. “Then things will pan out better.”