Thursday, 7 May 2009

Philippines -- a booming stock market and economy

Outside the Box
John Mangun

While many are still running around like headless chickens badmouthing the Philippine economy, a funny thing is happening. The Philippine stock exchange is booming.

On March 31, the title of this column was “Get into the PSE now.” At that time, the Philippine Stock Exchange index (PSEi) was at 1,986. Yesterday that index closed at 2,200 for a gain of 10 percent.

With the close yesterday, the PSEi now targets 2,400. And you have not seen anything yet.

I know that we have a tiny little stock market that is an insignificant part of the total economy. That is one reason all the economic “experts” pay no attention to what happens on our exchange. They are still living under the impression that the “old boy’s club” of the PSE has no relation to the real world. That is because most of them never had a real job in their lives outside of the academic world. You see, in the real world people take real risks with real money. In the academic world, a “real” risk is not getting caught stealing someone else’s ideas and claiming them as your own.

Have you noticed something, though, in the last month or so? Some of the biggest names in the Philippine economy-bashing group have gone very, very silent. A month and half ago, they were going with their “expert” counterparts in the West proclaiming that the Philippine economy was doomed, dead or at least dying. Zero economic growth, but only if we were lucky, they told us. And the best that our government officials could come up with was along the line of, “Well, maybe they are right but we hope not.”

At least recently, these officials have found a backbone and are beginning to stand firm on their positive outlook for the country.

I said in January this year that the Philippine economy in 2009, worst-case scenario, would post economic growth only slightly less than in 2008 (GDP increase of 4.6 percent), at around 4 percent. But I could be wrong. Growth in 2009 might even be higher than in 2008. If we reach or exceed the 2008 numbers, there are going to be many exploding heads in various university economic departments around the country, as well as in some of the local newsrooms.

You know something good is happening when even the most fanatic and biased “anti-Philippine economy” people have trouble slanting the newspaper headlines and stories against the reality of a growing economy. I might suggest that they would be more comfortable working for newspapers in the USA which are proud of their lack of truthful reporting, but in five years, there probably won’t be any major papers left in that country.

I said it repeatedly last year and I will remind you again. The only economy-killer for the Philippines is high inflation caused by high fuel costs. Yes, we need foreign investment like the outsourcing companies. We need overseas remittances. We need stable weather for agriculture. But only P60-a-liter gasoline can bring this economy to its knees very quickly.

Inflation for all of 2008 was 9.3 percent. April 2009 inflation was 4.8 percent, and that was down from 6.4 percent in March 2009.

However, the crucial thing to remember is that the greatest factor of any spikes in local inflation is the cost of fuel. While crude oil is now trading at the $50 level, somewhat higher than I expected, there is absolutely no upward bias in crude prices. But I will let you in on a little secret: Crude oil is still too high based on demand. The crude-oil price at $50 is based on the assumption that the USA economy is going to recover through this year. If the very bad trend of increasing USA unemployment and shrinking economy continues through this second quarter, we will see crude down to $35 before year-end.

And about the local stock market? Yes, the Philippine Stock Exchange index is up 10 percent since March 31. And, honestly, that is no big deal. This is: Philippine National Bank up 60 percent, Megaworld up 48 percent, Ayala Land up 23 percent and Metro Bank up 25 percent to name a few. Not bad for a stock market in a country that is going to have zero economic growth.

But you then say, look at the USA and its stock market. Aren’t we just following the West? No, it is the emerging markets that are pulling the Western markets.

Second, the US market rise is all smoke and mirrors, an illusion. The US government has pumped hundreds of billions of dollars into that economy. What is that money being used for? Interest rates are so low, bank deposits make little sense. No one is buying real estate. Business expansion and capital investment is zero. There is no place in the USA to invest with any hope of making a profit other than the stock market. The recent rally in US stocks is another “bubble,” sad to say. It may continue going up for some time, and I hope it does, but ultimately this is a bubble that does not reflect economic reality. Our market, on the other hand, not only reflects Philippine economic reality, but also is forecasting the future.

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  1. i support you all the way john mangun!

  2. a lot of people do!