Philippines: BBB, POGO AND TRAINS
The Philippines is enjoying its best growth run since the 1960s. No-one we spoke to on our visit to Manila in late June expected growth of any less than 6.5% out to 2020. Yet, in our view, all is not well. Money and credit growth are too rapid, consumer price pressures are building, the external accounts are deteriorating and profits are not improving. It is no surprise to us that the Philippines Stock Exchange is one of the worst performers in Asia: the country displays all the classic signals of overheating - and yet the central bank has been slow to act.We are Underweight Philippines equities - despite our belief that some great companies are listed there - and will remain that way until the Bangko Sentral gets ahead of the inflation curve. That will take at least two more rate rises this year and a number more in 2019.
Politically, concerns centre on the mercurial President Duterte. We asked Jemy Gatdula, Senior Fellow at the University of Asia-Pacific to assess the first two years of Mr Duterte's leadership. He has been controversial, abrasive and opinionated but, at the same time, he has raised questions about teh Philippines' place in the world and what Filipinos should or shouldn't value most. In an era of political turmoil he is by no means an outlier on the political stage.
Stay Underweight Philippine equities and be wary of the peso for now.
Best regards (from sunny Scotland)
Jim
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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