Promising but risky for investors

Bernard Lo of Bloomberg TV interviewed the regional equities strategist of Merrill Lynch early this week who said the Philippines is one of his favorites because of attractive price to equity ratios and really high quality companies. The way he puts it is simply, if those top Philippine companies can survive such a horrible environment and manage to make profits year in and out, they have to be good.

In so many words, if an investor has the stomach for the risks associated with the Philippines, now is the time to take advantage of the bargain prices in our stock market. We have also been battered so much the past few months and thus offer a good chance of an upside once factors in the external environment, like oil and rice prices, improve. And both have improved in recent weeks. Unfortunately, we still have the same government… which I think, explains investor risk aversion.

The sentiment of the Merrill Lynch strategist was echoed by global ratings agency Standard & Poors (S&P). It has downgraded its growth outlook for Asia-Pacific economies in 2008 and 2009 but the Philippines stood out with relatively optimistic projections supported mainly by remittances from overseas Filipinos workers (OFWs).

The chief economist of S&P observed that growth moderated to 5.2 percent in the first quarter of the year but private demand continued to grow albeit more slowly, underpinned by healthy remittance inflows. It was the weakness in the export performance that drove down GDP growth, the S&P economist pointed out, contracting by 11.1 percent during the quarter, which contrasted with the 3.9-percent expansion in the fourth quarter of 2007.

Of course, being the largest importer of rice in the world and an importer of almost all the oil we need, our economy is vulnerable to external shocks. “High food, fuel, and input costs have already begun to pass-through to that of non-food commodities, as evident in record-high core inflation of 6.6 percent in June,” he said.

Then again, because oil and rice prices have stabilized at a lower level in the world market, there should be reason to be optimistic about improvements in the local economic environment. If only we do not spook potential investors, local and foreign, about a war in Mindanao and Ate Glue removing all stops to extending her stay at Malacañang.

So the reality remains. Our problem attracting investments continues to be plain and simple risk aversion. The latest figures from the Bangko Sentral indicate a net FDI outflow of $95 million for the month of May, a negative turnaround from April’s net inflow of $269 million and was the first reversal recorded in 11 months. The BSP attributes this ever so kindly to a continued deterioration in global financial markets. That’s likely part of the explanation but the more important reason why foreign investments are flying out of the Philippines is our rotten reputation for governance.

The net FDI inflow for the first five months came largely in the form of equity capital amounting to $322 million from a gross of $461 million. These are, in BSP’s words, “funds mainly went to the manufacturing sector, particularly in the areas of shipbuilding and repair as well as manufacture of auto electronics parts and components as well as services, mining, real estate, and finance, and in the construction of hotels and power plants.”

The comparable figure for Vietnam, according to Thomson Financial as published in Forbes.com is more than $15 billion in foreign direct investment (FDI) pledges for over 300 projects so far this year The committed amount is 2.6 times higher than for the January-May period last year, said Nguyen Thuy Huong of the Ministry of Planning and Investment. Vietnam has set a target of attracting at least $21 billion of FDI this year, Huong said.

For us, BSP expects reduced investment inflows this year, with the FDI forecast to hit $2.6 billion by yearend, down from an earlier projection of $4.2 billion and last year’s tally of $2.7 billion. In Vietnam, they have firmed up some $15.3 billion worth of investments up to May this year.

There has to be something the Vietnamese are doing right and if Ate Glue were a more responsible leader, she would go out and find out what it is. It isn’t just because their communist dictatorship makes it easier for government to commit to investors. There is a communist dictatorship too in Cuba and North Korea, but they are nowhere near the attractiveness of Vietnam to foreign investors even if Vietnamese inflation is a punishing 25 percent.

The difference, I guess, is the high credibility enjoyed by Vietnam’s government. Otherwise, why would Intel move out of the tender mercies of our American democracy style government for the communist dictatorship of Vietnam? Investors are looking for very definite things, mostly good governance practices which may include a managed level of corruption, if it cannot be avoided at all.

So we are as always, outside looking in… being overtaken by a country that was so devastated by decades of war. The irony of it all is that Vietnam’s rise as a regional economic marvel is most likely being partly powered by OFWs, mostly professionals who are working in their universities, banks, industries. How come no one seems bothered by all these among Ate Glue’s cabinet? Nor is Ate Glue bothered herself, it seems. 

Nakakahiya na. And the tragedy is how our leadership cannot see its obvious failure in this one important matter of attracting investors, local and foreign. Propaganda won’t do it. Ate Glue must have credibility quickly or the next months up to 2010 are as good as flushed down the drain.

Jeepney stops

I received this e-mail from Glenn Yap.

I have been a follower of your column quite a while now and have been meaning to send some of my thoughts to you. In your column about Bayani Fernando Monday last week, I think he is doing a good job. He has implemented the U-turn in some major thoroughfares like in Libis and it seems to have worked. As for the pink fences, I’m still not convinced. I think it is still better to enforce rather than place barriers.

Which brings me to my suggestion for Bayani. He should start implementing jeepney stops on some of the major roads around Metro Manila. It is a win-win situation for everyone. Motorists like me will be delighted because we won’t have to be stuck behind a jeepney as he is loading/unloading on the second lane. Jeepney drivers should be delighted because less stops means more gas savings. Commuters should also be thrilled because it would mean a quicker commute to where ever they might be going.

It doesn’t have to be on all streets, just the major ones where a lot of traffic goes through. Jeepney drivers should be policed more strictly because they are the most egregious offenders of traffic rules. They load/unload even on the second lane of the road; they cut off other motorists without care; a lot of their vehicles are major polluters and most of their vehicles don’t even have brake lights. 

Stockbroker or frog

Two women were walking through the woods when a frog called out to them and said: “Help me, ladies! I am a stockbroker who, through an evil witch’s curse, has been transformed into a frog. If one of you will kiss me, I’ll be returned to my former state!”

One woman took out her purse, grabbed the frog, and stuffed it inside her handbag. The other woman, aghast, screamed, “Didn’t you hear him? If you kiss him, he’ll turn into a stockbroker!”

The second woman replied, “Sure, but these days a talking frog is worth more than a stockbroker!”

Boo Chanco’s e-mail address is [email protected]