Thursday, 16 April 2009

Why now is the time to invest in the Philippines

Economic crisis of 2007 revisited
John Mangun
Business Mirror
http://www.businessmirror.com.ph/home/opinion/8867-economic-crisis-of-2007-revisited.html

Sitting in front of a blank computer screen without Internet access is like being dumped on the remotest of the Hundred Islands for an evil version of Survivor. But I am getting used to it, since I have the worst Internet provider in the Philippines, perhaps in the world, by using Smart Bro.

My twice-weekly calls to Smart Bro to complain are always met with the response that there is something wrong with the “base station.” I am beginning to think that perhaps the New People’s Army has moved its operations from the boondocks to Parañaque, collecting its “revolutionary taxes” by attacking the Smart Bro cell site that provides my service. I keep wondering what Internet provider Philippine Long Distance Telephone Co. chairman Manny Pangalinan uses. Obviously not Smart Bro. No one is that dumb except me.

So if I cannot access the present to try to forecast the future, maybe some answers lie in the past, at least until and if Smart Bro restores my Internet service.

I ran across something interesting written on August 15, 2007. From a column I titled, “Economic crisis of 2007?”: “Earlier this year, several stories popped up in the international business press regarding the factors that might trigger a new Asian economic crisis. Obviously, these writers missed the potential crisis right under their noses, the potential for another economic crisis emanating from the US.”

I went on to write in conclusion that, “As subprime lenders default, it will dry up funds for even creditworthy borrowers who want to buy houses, further dropping house prices in the US. The truth is simply that no one knows how far, deep and long this minicrisis may go or get larger, and whether or not it will be looked on as the US Economic Crisis of 2007.”

As it turned out, it was not the “US crisis of 2007,” but a global crisis of historic proportions.

I wish I could say that I am an economic “expert” able to see the future. In truth, I am simply an observer and watcher of stock-market prices. I wrote then, “The Philippine stockmarket shrugged off all the news of fantastic corporate earnings, fundamental economic stability and all the other good stuff to dump more than 500 points off the Philippine Stock Exchange index [PSEi] since this crisis began.

“The economic fundamentals just do not warrant what we have seen here and abroad over the last weeks. However, you cannot argue with the stock market and the market may be more qualified to judge future events than we give it credit for. This very significant drop in share prices around the world cannot be ignored as to what it may be telling us about the next several months.”

It is the stock market and its investors that predict the future.

The Philippine stock market is telling us very clearly that the worst is over for the local economy regardless of what you read in the newspapers. Virtually no one in 2007 was calling for a global recession. The Western stock markets were saying otherwise. Virtually no one is saying that the Philippines will see good economic growth this year. The PSE is saying otherwise.

Now you are going to tell me that, obviously, the US crisis is over since the Western markets have gone up so much in the last month. Wrong. The West has crossed into a fantasy world where money and wealth have no meaning anymore. Economic “bubbles” can only happen when money no longer represents hard-earned wealth but simply pieces of paper the government prints. The Obama administration is spending and borrowing an amount equal to the total annual gross domestic product of the United States without any thought where the wealth, which is supposed to back that money, is going to come from. Just like a casino gambler borrowing from the financers, never thinking that there is no way to earn enough to pay back the loan. The gambler’s money on the table is an economic “bubble.” So, too, with the US stock market. You cannot have shares of companies that are losing money and will continue to lose money for several more quarters sell at a 20+ price-earnings ratio. No hard-earned wealth would make that kind of investment; only “bubble” money would.

Here in the Philippines, money is still backed by hard work and actual wealth creation, and is very cautious. Holders of real money can accurately predict the future because they assess risk and reward realistically. Holders of “bubble” money do not care about reality and the future. That is why an economically unjustified increase in prices is called a “bubble.” A bubble is not substantial and is short-lived. It is an illusion.

When Megaworld invests P6 billion in a new project, that is real wealth creation for the company and the economy. When General Motors takes $20 billion in government money to make cars and knows that it will lose money on every car it sells, that is an illusion of wealth creation.

There is a reason the PSE has outperformed its Asian neighbors this year. It is that the Philippine economy is going to outperform the neighbors this year. There is a reason you should be buying local stocks. It is that hard-earned wealth is buying these issues. There is a reason local stock prices are now rising; prices are going to go higher. Invest in the Philippines now.

PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com .

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