BWorld 98, Asian stock markets and the Duterte administration

* This is my article in BWEconomicForum last December 14, 2016.

The stock market is one of several indicators that show how an economy or a country is doing because it represents the inflow and outflow of investments, which are mainly driven by outlooks over the short and medium terms. It is also an indicator of how the rule of law is respected or trampled by a government in power.

During the BusinessWorld-PAL ASEAN Regional Forum last Nov. 24 held at Conrad Hotel, SM MOA Complex, among the sessions tackled was “Unity in Diversity: A Political-Economic Outlook.” The speakers were Department of Budget and Management (DBM) Secretary Benjamin E. Diokno, Asian Development Bank (ADB) Country Economist Aekapol Chiongvilaivan, and McKinsey Managing Partner Suraj Moraje, and Philippine Stock Exchange (PSE) President and CEO, Hans B. Sicat.

Mr. Sicat said that year to date (ytd), there has been net foreign buying of P17.6 billion or $373.6 million.

But in the period from Aug. 23 to Sept. 23 or one month straight, there was sustained net foreign sell off. The peso-dollar exchange rate also experienced significant depreciation from mid-September, touching the P47-to-a-dollar level and never looked back until it reached the near P50 level in late November.

This is bad news because the PSE was among the best performing stock markets in the region over the past decade.

The table shows the following:

One, in terms of expansion of stock market values in just one decade from 2005 to 2015, the best performing was China, which expanded by more than 20 times, the Philippines with more than six times, Vietnam with five and a half times, and Indonesia with 4.3 times.

Two, in terms of stock market capitalization as percent of gross domestic product in 2015, first is Hong Kong, second is Singapore, third and fourth are Taiwan and Malaysia.

And three, global capitalism is generally more generous to emerging economies like China, the Philippines, and Vietnam. Their previously highly repressed financial sector when liberalized has posted fast growth and expansion in a short period as one decade.

Let us now check another piece of data, the annual growth rate of stock markets of the same countries and economies over the past six years.

Meanwhile, we also need to recognize several facts:

One, the Philippines has the best performing stock market in the Asia Pacific over the past six years. Despite its warts and problems, the past administration has done something that really improved business confidence in the country.

Two, China, Taiwan, Singapore, and Vietnam have experienced roller-coaster rides in their equities markets.

Three, this year, though, especially the second half of the year, is particularly bad for the Philippines, from the best performing to badly performing over the past few months.

It seems the current administration in the Philippines is reversing the business confidence built over the past six years.

The new President’s disrespectful, crass, and vulgar assertions with his frequent “kill, murder, shoot” pronouncements could have contributed to the possible reversal in business confidence, at least in the stock market.

A more civilized President, an anti-drugs war with sufficient respect for human rights of the accused, an explicit disavowal of possible declaration of Martial Law and suspension of the writ of habeas corpus, and a business environment conducive to investors is badly needed.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a SEANET Fellow.
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See also: 
BWorld 95, Manufacturing and electricity costs in Asia, December 17, 2016 
BWorld 96, Free trade means more investments and people mobility, December 19, 2016 
BWorld 97, Direction of trade of Asian economies, December 21, 2016

Fat-Free Econ 32: GDP Growth, Stockmarket and Rule of Law

This is my article yesterday in TV5's news portal,
http://www.interaksyon.com/business/49318/fat-free-economics--fearless-forecast-up-to-7-percent-growth-for-philippine-economy-in-4q
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The Philippines’ high third-quarter growth in its gross domestic product (GDP) is good news. In the six major economies within Asean, the Philippines with 7.1 percent trumped Indonesia, which grew 6.2 percent; Malaysia, 5.2 percent; Vietnam, 4.7 percent; Thailand, 3 percent; and Singapore, 0.3 percent. 

The question is, will this be sustained at least over the short run? Before answering this, let’s look at the sectoral composition of GDP to get an idea of their relative weights over the past several quarters.

The share of the agriculture, hunting, forestry and fishing (AHFF) sector continues to shrink, with only 10 percent of GDP. The industry (IND) sector also follows this trend but at a slower pace than AHFF. The manufacturing (MAN) sub-sector accounts for slightly higher than one-fifth of GDP.

It is the service sector (SER), particularly the trade and repair of various goods (TR) that continues to dominate the local economy. This implies that high growth in services, which constitute 58 percent of GDP, would mean faster overall GDP growth, even if there is slow growth in agriculture and industry.

Table 1 details the sectoral and sub-sectoral composition of GDP, where AF stands for the agriculture and forestry sub-sector; F, fishing; MQ, mining and quarrying; CNS, construction; EGWS, electricity, gas and water supply; TSC, transport, storage and communication; FI, financial intermediation; RERBA, real estate, renting and business activities; PAD, public administration and defense; and OS, other services.

Source of basic data: National Statistical Coordination Board (NSCB).

Table 2 details growth by sector and sub-sector of the Philippine economy this year. Note the consistent drop in the share of fishing as well as of mining and quarrying this year.

The series of heavy flooding experienced in many provinces this year that damaged many aquaculture farms must have contributed to the shrinking in the fishery sub-sector. While the uncertainties in the mining sector, first with the major attacks by NPA rebels of several big mining companies in Mindanao, then the uncertainty over government policies contributed to the shrinking of this sub-sector.

On a positive note, there was a huge jump in construction activities in the second and third quarters of the year, which significantly pulled up growth in the industry sector from 5.5 percent in the second quarter to 8.1 percent in the third quarter.

The consistent growth in the service sector plus its relative weight in the overall GDP is the main explanation why third-quarter GDP growth was high. Take note that the growth in all sub-sectors, except in public administration and defense, was consistent.

With this development, any fear of “boom and bust” in the short term is unwarranted. It is more of a modest boom at least in the next few quarters. The notable growth in the stock market points to a possibility that a 6-7 percent growth in the fourth quarter this year is in the cards.

Table 3. Stockmarket Growth in Asia, 2012

Source: Hans B. Sicat, The Philippines Stock Exchange Inc.: Regional Integration of Financial and Capital Markets in the ASEAN as presented at the 37th FAEA Annual Conference, November 29, 2012 held in PICC, Manila.

Things appear to be bright and sunny in the Philippine economy, at least in the short term. There are external factors that contributed to this development, particularly the high uncertainty in the business environment in both Europe and the US as a result of their huge public debt burden, resulting in some investors fleeing those markets, and putting their money in the Philippine economy.

Certain internal reforms towards promulgating the rule of law, more protection of private property rights, and a credible justice system should be continued and sustained so the Philippines can secure its future.

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See also:
Fat-Free Econ 28: Poverty, Planning and Populism, October 29, 2012
Fat-Free Econ 29: Anti-capitalism, Fanaticism and the Poor, November 13, 2012
Fat-Free Econ 30: BPOs and Obama, November 14, 2012

Fat-Free Econ 31: On the Kasambahay, Solo Parents Welfare Bills, November 26, 2012