2015 Outlook, part 6By Randell Tiongson on January 16th, 2015
Is the Philippines now entering a turning point? Is the Philippine economy in a bubble or have we achieve a self-sustaining economic growth? Presenting the views of Business Mirror columnists, investment advocate and seasoned stock market expert John Mangun!
The 2015 Outlook of John Mangun
Philippines 2015: a turning point
“A turning point” in literature is defined as the point of highest tension or drama when the solution or climax to the story begins to unfold. That is what the world and the Philippines faces in 2015.
Two events occurred in the financial markets as we closed 2014. The spot price of Brent crude oil hit its lowest price since May 2009. The US Dollar Index, measuring the exchange rate for the US dollar against a basket of currencies, reached its highest level at 90.64 since December 2008.
While we are all looking at the price of crude oil as it affects local gasoline prices, the bigger picture is the general price of most commodities. Virtually every index that measures a broad basket of global commodity prices is trading at or near its 2009 level.
To have this situation can only mean one thing. The global economy is in such bad condition that demand is falling rapidly. If it were only crude oil prices that were falling, then we might be able to make the argument that this is being caused by increased supply. But it is across the board for other critical commodities.
The turning point for the globe is twofold. The first is the uncovering of how bad the global economy really is as the commodity prices fall. The second turning point is how much of the ‘emerging economies’ like Brazil and that class of countries has been dependent on dollars flowing out of the US into their economies.
The same thing happened in the 1997 Asian crisis but the major emerging countries did not account for 50 percent of the global economy like they do now.
The ‘gloom-and-doomers’ have been saying that the Philippine economy is in a bubble and all the growth of the last five years is because of foreign money supporting the economy. I do not believe that. Foreign money as investment coming into this country has been dismal. Remittances from outsourcing companies and from overseas Filipinos are significant. But with domestic sources accounting for 90 percent of all new investment, we are not dependent on the foreigners and their money.
But in the next 12 months we are going to resolve the question if whether or not the Philippines is in a bubble or has finally achieved a self-sustaining growth economy that can handle global economic shocks. I believe we have.
If the Philippine peso can maintain is relative strength and narrow sideways movement in the face of the appreciating dollar, we have finally come to economic maturity. If the interest rate that top corporations must pay on the debt does not widen in relation to the US corporate borrowing rate, we are in great shape.
For stock market watchers, caution is still the strategy. Either we will see a move on the Philippine Stock Exchange Index (PSEi) above 8,500. Alternatively we will see 2015 take the PSEi to below 5,500.
This year will bring new meaning to “It’s more fun in the Philippines”. I’m looking forward to it.
In 1976, Mr. Mangun earned his license as a stock broker on the New York Stock Exchange as well as being licensed and registered for the Options and Commodity markets.
After working for two major Wall Street firms, Mr. Mangun went to England as head of foreign exchange trading for a British asset management company.
Upon his return to the United States, he formed his own investment advisory company administering to the investment needs of corporations and high-net worth individuals.
Mr. Mangun has actively analyzed and traded the Philippine Stock Exchange since 1989, making his first stock purchase (and losing trade) buying shares of San Miguel Corporation on Friday, November 24th, one week before the 1989 coup attempt.
He has been a regular newspaper columnist, writing about the Philippine economy, business, and stock market since 1996. His website is MangunOnMarkets.com