Tuesday, 12 May 2009

Managing your assets

Outside the Box
John Mangun
Business Mirror

It must be difficult to know what direction your money should be moving when you read all the diverse opinions. Until conditions change, it is necessary to keep hammering about adjusting your asset placement. We are still at the beginning of a shift in what will work and what will not work to make you wealthier.

Last year was a year to conserve, become more efficient and wait out the inflationary spiral. This year is the time to break out that idle money and let it grow.

Yesterday, one of our local experts was writing about the stock market and how great an investment in the Philippine Stock Exchange would be. Except, virtually every reason he cited was based on what is happening in the USA. Makes no sense.

Further, anyone who bets on the USA right now has more guts than brains, I am afraid. That economy is losing 500,000 jobs a month and even the Obama administration is projecting no employment growth until 2010. The dollar is already taking a hit in the world markets as the euro reached 1.36 from a recent low of 1.32. This is significant.

China is set to report that its exports feel the least last month in the past four months. No reason to get excited, though, as this is a result of inventory replacement and some consumer optimism, but not in the USA.

Our local stock market is breaking into a new long-term rally that will last months and push prices near historic highs. You must get onboard if you want to increase your wealth. Every sector of the Philippine economy, except exports, is growing, and that growth is being and will continue to be reflected in local stock prices. Stocks like Megaworld are up more than 100 percent from 2008 lows, and yet, the rally has just started.

As mentioned before, your totally safe money that you will not need for some time should be placed in one-year bank time deposits or in Philippine government debt. The government is going to lower interest rates to rock bottom as long as the peso does not weaken against the dollar. There is absolutely no reason for local interest rates to be high except to protect the value of the peso. The lower rates go, the more lending and general economic activity is generated. Inflation is forecast to be 4 percent for 2009. This is an incredible improvement over 2008 and will lead to a spurt of economic growth not predicted by the foreign wizards. This low inflation rate will cause a drop in interest rates. You need to lock in high returns now.

And the movement of interest rates is another reason to stay far away from the dollar. I do not care who is calling for a weaker peso through the end of the year. They are wrong, wrong, wrong.

Remittances will grow, at the worst, by a near double-digit amount. Dollar inflows from the outsourcing business are unstoppable. All the negative talk about poor FDI (foreign direct investment) is valid but can be offset by local investment.

Local investment is more important than FDI. Local investment does not pull out; it is vested in the Philippines. The Shoemart group is spending P12 billion to build four new malls this year. That is worth twice as much as any foreign investment over the long term. Yet there is foreign investment that seems to be ignored by the “experts.” New Philippine Economic Zone Authority investments are up 30 percent over 2008. Note this about the “distressed” IT sector. From Philippine Star: “Texas Instruments [TI] has announced that its new assembly and test facility is now fully operational here and is ramping production with the latest packaging technologies. Earlier, the CDC said TI is expected to invest some $1.5 billion in its facility here.”

If you want some investment bargains, get your focus outside of Metro Manila. There is a tremendous amount, relatively speaking, of wealth building and investment in the provinces. A weekend trip North or South will open up both real-estate and business opportunities that you are missing here in the metropolis. Not only is the “smart” local money quietly buying assets in the province, but also foreign money is investing there. Witness the expansion of the outsourcing companies in Iloilo, Bacolod and other provincial locations.

Your liquid and available cash should be distributed in the following manner. Get 25 percent into interest rate-locked investment right now. I guarantee that the interest rate you will receive in a month will be lower than what you can receive today.

Put 40 percent to 50 percent of your cash into the stock market. Forget about looking for the “hot tip” stocks. Go buy the “household name” companies. Thirty-percent to 40-percent return through the rest of 2009 will be normal. And here again, buying stocks in a month or two will cost you more. Go buy some real estate, but not the high-end properties. Get out of Metro Manila in order to find better value for the purchase price. Provincial real estate is a long-term hold where you will see a five-year double-your-money proposition.

I will say it again, and probably again and again. If you do not substantially increase your wealth in 2009, you have no one to blame but yourself.

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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