A tipping point?
9:30am Tuesday 19 October 2010
Yesterday, I met with a European diplomat who was posted in the Philippines from 2002 to 2005. The diplomat had left the country for an assignment in South America, in Uruguay to be exact. For those who do not know where Uruguay is, it is a small country tucked between Brazil and Argentina. Because it is not as vast as its two neighbors Uruguay chose to develop as Singapore did in Southeast Asia, as a financial center. It’s capital, Montevideo, had been an off-shore banking center since the 1970’s where wealthy Brazilians, Argentinians and Chileans had squirreled away some of their cash. Of course the mega bucks always find their way to Switzerland, but in essence, living in Montevideo would give you an idea of how the wealthy in developing economies behaved with their wealth. Furthermore, you would have had a profound view of a BRIC country such as Brazil, one of the most dynamic economies of this decade.
This European diplomat was reassigned to Asia in 2007, but no longer in the Philippines. The person got a posting in Thailand. I got to know about this person because the diplomat had invested in the FAMI equity fund and similarly maintained a Firstmetrosec securities account. It then occurred to me that perhaps this diplomat had a Filipino spouse and thus the reason for keeping investment in the country. I was wrong because the spouse was also European. I have no idea of what this person’s entire investment portfolio looked like, but I had to ask why this person kept on investing here considering that there was no familial link to the country.
The answer was pretty straightforward. This person was of the belief that investment in the developed countries will not be seeing significant growth in the future. East Asia was likely to outpace the developed markets and this person believed that the Philippine market was a good place to diversify into. Remember, this person had already been exposed to Brazil.
This is probably a unique story, but what strikes me about it is it comes directly to my sphere of experience. I cannot ignore phenomenon in nature that when you see an ant in your kitchen, you know that it is not alone. So when I see a foreign individual investing directly in the Philippine market, he or she cannot be alone but likely to be part of an unidentifiable group of like-minded people. In the best-selling non-fiction, The Tipping Point, the author notes that oftentimes we do not spot a trend until a point when a critical mass is already involved. Thus, the tipping point.
What comes to mind is the foreign capital that is probably massing into markets such as ours. It is probably just in the process of building up. We have probably seen just an ant, but there is likely to be a swarm that is there but is not yet visible to us. Its significance to day-to-day trading in the short run is that it underpins values of the high-profile stocks in the market. No wonder MER continues to be expensive and the buying on AP and AEV continues to be relentless.
Thoughts pass through my mind that perhaps the reason that PEs are rising is because there are simply a lot of buyers waiting in the wings. Perhaps, that is why in spite of a not so warm reception of Cebu Pacific among locals, the stock is oversubscribed by foreigners. Furthermore, I do not believe that foreign funds are simply being sucked into this market. I think that there is a deliberate move to increase long-term portfolio weights in this market simply because there is a swarm of individuals wanting to gain exposure to this market. Who knows? I may even be right.
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