Investment News Analysis

TIME out! No more time for TIME-warps

TIME magazine, a one-trick pony in blinkers, should be the last place investors go to get their information and The VolatilianTM is fairly sure it is; after all, this once-over-lightly American news weekly has never been accused of being a serious commentator on the world’s financial markets or its economies, any more than its been accused of being an example of balanced reporting. Its latest attack on the Philippine president, Rodrigo Duterte, illustrates the reasons for both.

Lets look at the headline, ‘Philippine Equities Plunge…’ suggesting that there was a massive sell-off across the board at the Philippine Stock Exchange (PSE). The article was based on a note put out by Bloomberg Markets (a reliable commentator); its headline was ‘Duterte’s Stock Rally Withers…’. In other words, it wasn’t a plunge in stocks at all; no alarm triggers were going off at the PSE. It was a rally that had withered – not exactly an unusual event in market behaviour.

And, of course, in the body of the story the treatment was also very different. While Bloomberg attributed the market’s earlier rise – reaching a 15-month high – to Duterte’s election victory, noting that the market was still up by 12% on the year, and that the Philippine peso had its best performance of any Asian currency in August, TIME ignored all this. Instead, it used the Bloomberg note – which it evidently didn’t understand – as a lead-in to fire broadsides at, quote, “pugnacious President Rodrigo Duterte” who apparently, quote, “is expected to defend his murderous war on drugs to US President Barack Obama”. Quite what that had to do with the story, frankly, is baffling. Certainly, Bloomberg didn’t find it necessary to include it in the original story about stock movements.

But here’s a little actual, factual background. This year, foreign investors have ploughed US$1.3 billion into the PSE – much of that since the results of the election were announced at the beginning of May. Over the past three months, US$248 million has been withdrawn from the market – that was the point of the Bloomberg note. Some part of that, however, is likely to be from the US$451 million foreign-portfolio investments (FPIs) which flooded into the country in June; Hot money – investors warm to Duterte. A full 83.8% of those investments ended up in the PSE. By their nature FPIs are speculative; they don’t reside long wherever they go. They are a fast hit for a fast return.

Leaving aside the stock market, more relevantly, US$8.51 billion found its way into the Philippines in the first half of this year.

TIME magazine, it has to be remembered, is another pampered barking dog of Washington’s Left elite. Its current managing editor, Nancy Gibbs, is an Obama sycophant – he’s her “Prince” apparently – who eulogises all things liberal; her predecessor, Richard Stengel, is now at the US State Department. He was appointed by Obama as Undersecretary of State for Public Diplomacy and Public Affairs. Right, we’ve wasted enough time on TIME but we’re sure you get the point.

The Volatilian™ is not a stock-market gazer. Stock-market performances, while important, are not a crystal-ball reading of the overall health or vibrancy of a country’s macro economy. They can show investor sentiment in a country to some degree, but investor actions in a market are determined by a complex matrix of influences. Global and regional pressures – political, economic; even climatic – central-bank decision-making (actual or perceived), as well as hedging and balancing portfolios across markets and across sectors are just a few of the considerations the big movers of money have to deal with.

That said, it’s worth noting that historic data show that the PSE has a habit of performing strongly in the second year of a presidential term – for President Fidel V. Ramos it leapt up by 116% in year two of his administration, for President Benigno “Noynoy” Aquino, 36%, for President Gloria Macapagal Arroyo, 32%; for President Joseph Estrada, 15%.

The anti-Duterte static being created by the media camarilla and their fellow travellers in the cabal of NGOs needs to be ignored; the Philippines’ economic potential is as great – if not greater – than it has ever been.

What’s happening, right now, across the 300,000 square kilometres on which this island nation stands – investors take note – is a new chapter in nation building; a reuniting of the society that will allow its true potential as an industrious, savvy and entrepreneurial people to be realised. That is at the core of this administration’s purpose.

Right now, the Philippines is in transition as it moves to a socio-economic model. This is the new normal which international investors need to get their head around if they are going to trade successfully and profitably in this market. Those that miss this picture could miss the boat.

What also needs to be understood is that there are a number of large legacy problems which are being tackled simultaneously – not least among these, a neglected agricultural sector, a duopoly-controlled telco sector, and a grid-locked transport sector; all historically under funded and hobbled by decades of piecemeal development and conflicted planning polices.

Duterte and his Cabinet are not sugar-coating these problems – the reverse; they are bringing them, finally, into the light and tackling them with an energy that has rarely been seen from public servants in this country. The VolatilianTM gets reports regularly of department secretaries in the field seeing the problems first hand, not relying on questionable and often finessed data from somewhere down the line. That fact alone should give investors confidence that the ship of the Philippine economy – rough though the waters are just now – is in the hands of a dedicated crew.

There is little doubt that the two-month-long crackdown on the Philippine mining sector, being carried out via a Department of the Environment and Natural Resources review of the industry, has worried investors. The downward trend in the prices in Philippine mining stocks clearly shows that. Similarly – though to a lesser extent – the decision by the government’s casino regulator, the Philippine Amusement and Gaming Corporation, to ban online gaming by reason of its inability to collect taxes from companies operating in this sector, hit the share price of a couple of listed firms hard. Given better regulation, though, and removing the cowboy element from them, will eventually allow water to find its own level in these sectors.

Meanwhile, one of the long-term goals of this administration is to reconfigure the country as a federation of states (possibly 11 of them); each commercially autonomous. The Philippine Federation – the shape of things to come. Separately, they will be able to set their own economic agendas, develop their own industries and be free to attract foreign direct investment – but on terms set by them, not by the bureaucratic and corporate interests back in Manila. This, The Volatilian™ believes, will amount to an Open Doors policy in which the states will vie with each other to gain competitive advantage in attracting inward investment. Free market all the way.

Foreign investors are not squeamish. Hundreds of billions of dollars are moved through the world’s capital-markets each day. Crisis – as elements of the media would have us believe the Philippines is experiencing – is part of their world. In Chinese, the word is spoken as two characters: wei (danger), ji (opportunity), and that’s a language they understand.

But this is a journey which at times – like now – will pass through volatile territory; parts of it will be easy, others treacherous, much of it unchartered. And the last thing any foreign investor needs on this trip is a map printed by TIME.