Posts Tagged ‘Philippines’

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When was the last time you had a pay rise? Many people might answer that question by saying “about five years ago.” Envy the Chinese, or Poles, or Mexicans, or Indians. According to PwC, they are likely to see their wages shoot up. This is set to be a very important development, with implications for investors and businesses seeking new opportunities. But maybe workers in the west don’t need to be too envious, the pay gap will still be pretty enormous. It’s a very important trend all the same.

Between now (2013) and 2030, real wages in the US and the UK are expected to rise by about a third. Let’s hope that’s right – relative to what we have seen over the last half decade that would be a result. But over that same time frame, average wages in India could more than quadruple in real dollar terms and more than triple in the Philippines and China.

Let this chart do the talking:

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So what are the implications? First of all see the expected rise in wages across these countries in the context of re-shoring. See: Is manufacturing coming home? It will clearly provide the impetus for companies re-shoring their manufacturing closer to where most of their customers are.

What we may see, as wages rise in China, is not only more manufacturing in home territories, but nearby too. Opportunity, as they say, knocks for Poland and Mexico.

Looking further ahead, PwC says places such as Turkey, Poland, China, and Mexico will therefore become more valuable as consumer markets, while low cost production could shift to other locations such as the Philippines. India could also gain from this shift, but only if it improves its infrastructure and female education levels and cuts red tape.

From a corporate/investment point of view, who will be the winners and losers? PwC reckons western companies who may emerge as winners will include retailers with strong franchise models, global brand owners, business and financial services, creative industries, healthcare and education providers, and niche high value added manufacturers.

As for losers: well, watch mass market manufacturers, financial services companies exposed in their domestic markets, and for companies that over-commit to emerging markets without the right local partners and business strategies.

© Investment & Business News 2013

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Asia is in crisis mode. Europe, or so it appears, is in recovery mode. In Asia we are set to see a re-run of 1997, or so they say, when Asia suffered one very nasty crash. In Europe years of pain are set to pay dividends, or once again so they say. Yet, look beneath the surface and things look different. Asia today is nothing like Asia in 1997. Parts of Europe on the other hand do.

Déjà vu. We all get it from time to time, but presumably it is an illusion. It has been theorised that we may get that feeling of that having done or said something before, because our subconscious can perceive something before our conscious. Déjà vu when applied to Asia may be an illusion too.

At the moment many are trying to draw a lesson from the 1990s. In 1994, the US Federal Reserve began a cycle of tightening monetary policy. As US interest rates increased, money flowed from the so-called tiger economies of South East Asia into the US. The 1997 Asian crisis resulted. The IMF stepped in. Some countries, that had previously seemed to be on an unstoppable road to riches, suffered a very nasty recession/depression.

Many fear a repeat of this today. The Fed is set to tighten. The biggest victim to date has been India. Brazil, Turkey and Indonesia have also seen sharp currency losses. Indonesia’s central bank has responded by increasing rates four times in just a few months. Don’t forget, however, that despite the severity of the 1997 crisis, within a short time frame output across South East Asia had passed the pre-1997 peak. It will be like that again. Indeed Indonesia, perhaps along with the Philippines, is one of the most interesting territories in the world right now – from an investor’s point of view that is. This time around savings rates are higher in South East Asia, while external debt – especially in the case of Indonesia, the Philippines and India – is relatively modest.

Contrast this with what is happening in the euro area, where many countries in the region are facing the tyranny of a fixed exchange rate, which is causing the recession/depression to drag on and on.

But the latest Purchasing Managers’ (PMIs) Indices relating to Europe look promising. The PMI for Spain hit a 29 month high, for Italy it was at a 27 month high. Ireland’s PMI was at a 9 month high. For Greece the story is sort of better still; the PMI is now at a 44 month high.

However, the Greek PMI still points to recession. In Spain, Italy and Ireland the growth looks only modest. Just remember that these countries have massive levels of unemployment – especially in Spain and Greece. For them to cut government debt to the levels required, they have to impose austerity for years and years.

And just consider what might happen, if the markets expect an even higher return on the money they lent to troubled Europe as rates rise in the US.

The markets are panicking over Asia. They should perhaps be looking towards Europe.

© Investment & Business News 2013

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What have Apple and the Duchess of Cambridge not got in common? Answer: Apple still needs a new baby. It’s the point that the markets don’t seem to get about the company. Its shares have been falling faster than a guillotine on the head of the last King of France, but the markets have been way too quick to write the company off. Yesterday saw good news from Apple as profits beat expectations and shares rose; but still the real story is being forgotten.

The company’s latest set of results were out yesterday. Profits fell to $7 billion in the latest quarter, from $9 billion in the same quarter last year. To put the numbers in perspective, profits from the equivalent quarter in 2011 were pretty much the same, but in for 2010 were only $3 billion, and just $1billion in 2009. In other words, they have risen sevenfold in four years, which some might say is impressive.

It was a similar story with sales, but if anything a tad better. Sales rose 1 per cent on the same quarter in 2012, and have risen by more than 400 per cent over the last four years.

But the markets don’t care about all that. What they care about is whether the company did better than expected, and on this occasion it did. It was down to the iPhone. It sold no less than 31.2 million units of the old girl in the quarter (compared with 26 million this time last year), a record for that particular three month period, in fact.

Sales of the iPad were down, and so were sales of the Mac, although in the case of the latter, the fall was not as great as that seen by the overall PC market.

Apple’s problem is that it is now operating in mature, or at least mature(ish), markets. When smart phones or tablets become commodities, margins will fall – it’s simple economics.

The company’s boss Tim Cook said: “I don’t subscribe to the common view that the higher-end smartphone market has hit its peak.” He added: “We saw very strong sales in many of the emerging markets.” And indeed sales into India, Turkey and the Philippines rose substantially. (As an aside, note that bit about sales to the Philippines rising. It is a different story altogether but worth mentioning at this point that at the moment the Philippines is one of the hottest markets in the world, from an investor’s point of view.)

But the real point is that Apple has proven itself to be the master of disruptive technology. It did it with the iPod, iPhone and iPad. When it comes to established markets it is just another player. Okay, it’s one with very pretty products, and maybe an important player, but Apple has no inalienable reason to outsell, say, Samsung in its key markets.

Apple’s big test lies ahead. The key for the company lies not with tweaking existing products, but disrupting markets with new products, such as smart watches or TV players.

Mr Cook also said: “Our focus is always on new products and services,” and “We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”

So how about that? – laser focused, no less. Let’s hope that the new products are not laser discs.

© Investment & Business News 2013

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The BRICS are not what they were. Maybe it is time to look elsewhere.

Take news out this morning. According to Capital Economics, growth in GDP across emerging markets may have fallen to a three year low. Other data revealed that the Brazilian economy grew by just 0.6 per cent in Q1. But despite the lacklustre growth, fears over inflation have forced Brazil’s central bank to up interest rates by half a per cent. Looking at other data out today revealed that the economy of the Philippines grew by 7.8 per cent.

The BRICS have problems. China is struggling to adjust from a growth model that relies on exports and investment to one that grows off the back of consumer spending. In short China needs more internal impetus for growth. Brazil’s problem is the opposite: too much reliance on consumers and not enough investment.

News on the Indian economy has been a disappointment, as the country fails to make the reforms necessary to compete on the international markets. As for Russia, it remains over-reliant on oil and gas and Capital Economics forecasts it will grow by just 2.3 per cent this year.

In contrast, the TIMPs – that’s Turkey, Indonesia Mexico and the Philippines – look a lot more interesting. As indeed does Malaysia, Thailand, Vietnam, Chile, Columbia and parts of Central America – such as Panama.

The stock markets of the Philippines and Thailand have been the second and third best performing in the world during the last two years. (Venezuela was first, but this market is small and very illiquid.)

Stock market growth does, of course, bring with it the risk of stocks rising too high. The Philippines’ stock market is trading on a valuation of around 20 times 2013 earnings, but less than the p/e ratio seen before the Asian crisis in 1997.

The Asian crisis of 1997 rocked the South East Asian region hard. Are we in danger of seeing a repeat of this episode? This time around there is a difference. The savings ratio in Singapore last year was 49 per cent of GDP, and 39 per cent of GDP in Malaysia.

The biggest economy in the region is Indonesia. Some reports have suggested a credit bubble may be forming in the country. It may be worth pointing out that in Indonesia the ratio of credit to GDP is 30 per cent, against an average of nearer 100 per cent for the region. More interestingly, in Indonesia a smaller proportion of credit has funded projects in the property sector, relative to Hong Kong and Vietnam, for example.

As a result there is little hint of a property bubble in the making. Instead, much of the credit has funded infrastructure and manufacturing. In 1997 around 50 per cent of Indonesia’s credit was funded by foreign currencies. Today that level is nearer 15 per cent.

© Investment & Business News 2013

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Nobel Laureate Joseph Stiglitz reckons that US student loans are the next big western economic crisis in the making – the next sub-prime. In the UK, the numbers are not quite so scary, but we do seem to be adopting many of the worst elements of the US economy.

Meanwhile, we keep hearing about kids going to university, and coming back with degrees that are not much use to man nor beast – but they do have lots of debt.

In his book ‘Anti Fragile’, Nassim Taleb (author of ‘The Black Swan’) questioned the link between education and economic success. Taiwan had lower literacy rates than the Philippines before it embarked on its period of growth. South Korea had lower literacy levels than Argentina before its growth era, and before Argentina’s collapse.
When we look at a country’s wealth and compare it with education, we see a connection. Richer countries tend to spend more on education. But which way is the causation? Does education lead to wealth or wealth lead to education?

Taleb reckons that apprentice-type education models are more closely correlated with economic success.

Here is the snag. Higher and further education may not cause GDP to rise, but for individuals there is a link between education and wealth. Countries that offer free advanced education to all tend to see a more evenly spread distribution of income.

Besides, in the era we are set to enter, in which we will see 3D printing, and nanotechnology, many people may have to re-train several times throughout their career. Maybe a good education provides an essential foundation in a world of very rapid change.

© Investment & Business News 2013