Be careful what you wish for

It’s the Yuletide season once again. We are ending the year with merry-making, and starting a new one with all sorts of resolutions and wishes. A more prosperous business. The better things in life. Perhaps, even a change in character. Change, per se, is not bad if it leads to something good. But let’s be cautious when we are seeking for drastic ones.

We are bringing this up in the light of persistent efforts at unseating our leaders. And before we get too excited to join the bandwagon, let us be aware at the outset that our problems will not be resolved by a mere change in leadership. Do we have an alternative and viable plan? Are those who we want to take over government competent and not just popular? Are we pursuing the changes just because it is the "in" thing? Also, in any leadership change, there are bound to be policy changes. Will these policy shifts add to and not distract the growth momentum that we have built up?

So, as we proceed to make our wishes for the New Year, we offer an unsolicited advice to those seeking to change policies or our leaders just for political expediency or pursue any selfish ambitions: Be careful what you wish for. In Thailand, they got theirs but look at the consequence.

Popularity: No guarantee for competence

The coup d’etat in Thailand succeeded because of popular support. But now, people are probably scratching their heads and wondering if this was really the best option that they had. Surely, the ruling government at the moment may be popular. But are the new officials really competent to handle both economic and political affairs? Maybe some of the reforms implemented by Thaksin were unpopular. But were such economic reforms necessarily insensible? Is the incumbent government really qualified to do a better job?

Just recently, Thailand suddenly implemented currency controls in the hope of arresting the continued strength of the baht and amid calls to protect its exports sector. The abrupt policy switch did not only surprise investors. It scared and angered them and, consequently, drove them away.

At the very least, the move was referred to as the "height of incompetence" by some investors quoted in newswire reports. To think that the policy shift came from the central bank, a very important regulatory body on which investors rely heavily for investment guidance. So this one wrong move done in just a day may have long-lasting negative consequences to the country.

The aftermath

The aftermath of an ill-thought policy to please just a few was nothing short of devastating. The Thai stock market plunged by as much as 19.6 percent (its biggest drop in more than three years) while the baht fell by as much as 2.3 percent after gaining about 14 percent since the start of the year. To put this in perspective, what the Dow Jones lost in almost two weeks during the infamous October 1987 crash, the Thai stock market managed to lose in just a day!

The consequence of the Thai central bank’s sudden policy shift was not limited to the Thai stock market alone. It created ripples in other emerging markets, including the Philippines, and sent wrong signals to foreign investors who have always been wary about investment risks in the smaller markets. Our own Phisix fell one percent during the same day after starting out steadily in the first half of the trading day.

Lessons to learn

As we can see, governments and policies are not cases for trial and error. If the country has to attract the much-needed long-term investments, it is important to guarantee consistency either in government or policies. Policymakers should refrain from vacillating and changing rules in the middle of the game. Also, policies should be formulated and implemented to benefit as many as possible and not just to satisfy one sector or group. They should be well-thought of and not a result of acquiescence to calm a noisy lot.

Time and again, we have emphasized the importance of being attuned to market sentiment and the need for consistency in policies. We mentioned repeatedly in our previous articles that serious investors plan on a long-term basis and that they consider unstable policies to be the greatest risk to their investments. 

We hope that through this article we have imparted our two-cent worth on possible pitfalls when pursuing radical changes. In the meantime, let us enjoy the holidays. Here’s wishing our readers and investors a blessed Christmas, and a more fulfilling and prosperous New Year!

For inquiries and comments regarding Philequity, you can email us at [email protected] or [email protected] or call Jerome Gonzalez or Ricardo Puig at 634-5038.