``Most of Southeast Asia is held back by corrupt relationships between politicians and businessmen. This results in too many monopolies and cartels, and a corporate sector that enriches a few powerful families at the expense of the overall economy. Under Marcos, crony capitalism plumbed new depths of larceny and incompetence. Still, the situation was bad in the Philippines even before then. This perhaps reflects two things. First, the key business families are also the key political families, rather than their associates, and so are even closer to the heart of government. Second, its history as a Spanish colony means its systems are closer to those of Latin America than the rest of Asia, which was mostly colonised by Britain, France and the Netherlands. So it shares many of that region’s governance problems.”- Cris Sholto Heaton Should you invest in the Philippines?
So how will the present turn of events impact Philippine markets?
Here is how the Wall Street Journal sees the effect of the Euro’s bailout on Asia[1], (bold highlights mine)
``While Asian markets welcomed the €750 billion ($955 billion) bailout plan, economists and analysts warned that the rescue package could end up bringing even more capital to Asian markets...
``Loose monetary policy in Europe and the U.S. has already helped to inflate assets prices in Asia, especially for emerging-market bonds and real estate. The European Union proposal telegraphs that easy money will continue for the time being. The Federal Reserve reinstalled currency-swap lines that will also make dollars more easily accessible to funding markets around the globe.
``Recent data confirm that Asia's economies are moving strongly despite the turmoil in Europe, and are at risk of inflation grabbing hold.
Why should foreign money come to us?
Aside from the tremendous liquidity, Asia’s finances are generally better positioned relative to developed economies (see figure 6)
In relative terms, Asia has higher savings, current account surpluses, low systemic private sector debt, lower national debt as % of GDP and better fiscal position.
I think the most important factor driving Asia today is the inclination towards more openness to trade and investment with the world today. This is aside from deepening trends towards regional integration.
Moreover, the other notable impact of the trade openness is the economies of scale from Asia’s huge population.
However, economic development and financial markets can disconnect as it did in 2008.
So I am not as confident of a decoupling until we see more elaborate evidences from this.
Nevertheless since markets as unlikely to crater from our perspective, the other potential impact could likely come from the optimism brought about by a Presidential honeymoon cycle.
As we noted in the past[3], the Presidential elections in the Philippines tend to coincide with the troughs in the interest rate cycle in the US.
This we think has fuelled the optimism that led to previous Presidential honeymoon cycles (see figure 6). And we seem to be in exactly the same position as before.
Figure 7 Phisix: The Phisix’s Presidential Honeymoon Cycle
The outperformance of the Phisix relative to global markets of late could already be a sign of liquidity driven Presidential honeymoon cycle.
But one week does not a trend a make.
Therefore we will have to observe how our markets will react to external pressures.
Nevertheless the odds appear to be greater for the domestic honeymoon cycle to playout as it has, possibly this time with a stronger impact.
However it’s mainly not because of the election winner, although the buoyant sentiment will indeed contribute, but it’s going to be because of the unprecedented scale of liquidity, given the current conditions.
[1] Wall Street Journal, Asia Fears Flood of Capital Risks More Overheating
[2] Money Week Asia Why the eurozone crisis won't rattle Asia
[3] See Why The Presidential Elections Will Have Little Impact On Philippine Markets
No comments:
Post a Comment