Tuesday, 14 April 2009

Philippine investment opportunities

Outside the Box
John Mangun
Business Mirror
MORE FROM JOHN MANGUN: http://mangun.blogspot.com/

Now is the time to get serious about making money from your investments and idle funds.

The events unfolding in the West are playing almost perfectly into the hands of countries like the Philippines. The uncounted billions of dollars being spread around like party favors is creating the illusion of stability along with the potential of a brighter future to come.

The reality of the continuing US unemployment numbers is all but ignored in the media. Real numbers, as supplied by John William’s think tank, American Business Analytics and Research (www.shadowstats.com), puts unemployment closer to 20 percent. Further, the US money supply has not yet reflected the impact of the stimulus package.

When the hard cash comes into the economy, two things will happen: a jump in inflation and a drop in the value of the dollar, and both will happen in 2009. And while China talks of continuing to buy US government debt, the reality here is that the Chinese reduced its purchases in the last two months, instead shifting a minor amount of its reserves into hard assets. Nearly two-thirds of the $2 trillion of Chinese foreign currency reserves are invested in US government debt instruments. Other foreign money is making up the shortfall from reduced Chinese debt-buying. But this, too, will stop within the next quarter or so.

So what about the local economy? There is absolutely no indication that the numbers for the first quarter are going to be anything near what the “gloom-and-doomers” would like. I still stand by my worst-case forecast that total GDP for 2009 will be only slightly less than in 2008.

But from a personal investment standpoint, the local economy will have less influence on your investment performance than you might think.

Not all of the following is for everyone. However, you need to look at the broad picture right now, and each of these makes up the local investment “world.”

Yesterday’s downturn in the Philippine stock market created a wonderful buying opportunity. Prices closed right where they should have to continue to confirm that the stock market is serving up great profit potential. The Philippine Stock Exchange index has so outperformed the other regional markets that any pullback affords better prices. Two weeks ago the technical indicators confirmed an upside breakout, and we have not even seen the start of a bull-market rally for 2009. Local blue-chip stocks will give you a minimum of 20-percent to 30-percent return through the rest of 2009. We are closely following 40 different issues, and only seven warrant a long-term sell recommendation. Thirty issues are still neutral as we await a confirmation of a very long-term buy signal. This is very important. Although the market is up 20 percent from its weekly low in November 2008, there is no sort of irrational exuberance in the market. There is so much more room for prices to rise before there would be any concern of an overheated market. Buy local stocks; make lots of money.

I told you last year that anyone who bought dollars at or near P50 was going to lose money. I will say it again. Buying dollars against the peso will cost you money. Not only will you lose on the exchange rate, but you will also lose an opportunity cost as the difference between peso deposit rates and dollar deposit rates. You can earn at least twice as much interest on your peso time deposit. Further, weak dollar equals strong peso. The “experts” you read saying that the peso will weaken know little about the currency markets. They refuse to understand that the peso cannot weaken unless the dollar is strong. The dollar hit its high on March 3. The peso did not break 49. Any “expert” who makes a prediction on the peso-dollar must also make a dollar-euro prediction. Year-end euro-dollar at 1.20; year-end Philippine peso at 40.

If you have not invested in Philippine government debt instruments, now is the time. Over the next six months, we will see more reduction of local interest rates by the government. Because rates are relatively higher here in the Philippines, the government has wide room to lower rates and still favorably compete in the global debt markets. You can earn an annual interest rate of 4.70 percent buying government debt. And you need to buy now, as these rates will continue to fall as inflation drops and government borrowing rates fall. As rates fall, the value of the debt instrument will rise and you might be able to make a profit selling later in the secondary debt market.

Property prices are going up over the next 12 months. I never suggest buying real estate for capital appreciation. However, rental income on your real estate is very high in the Philippines. If you are thinking of buying, do it soon. Although construction-material costs are comparatively low right now, these costs will rise in the next year and new property prices will go up also. As money is freed up in the West, overseas investors will be coming back to property markets like the Philippines in the same way as they did four or five years ago.

You have no excuse for not substantially increasing your wealth this year by investing in the Philippines.

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

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