THE Philippines is an amazing country.
When a mortal human being decides to run for national office, suddenly he or she develops superpowers, able to create millions of jobs, bring peace and order found only in paradise, and create wealth where the streets are paved with gold. Even just holding an election means that economic growth will boom along with the stock market.
At least that is all that we are told to expect in the next 12 months. Reality may be a little different. The Philippines is still connected to planet Earth and the world is not necessarily a place of free-flowing milk and honey.
Steel is like the “Lego blocks” for the world. Our buildings, bridges, factories and the machinery to build almost everything else is made from steel manufactured in one form or another. Like Lego blocks, there is almost an unlimited supply of steel as it is needed. However, as in most markets, the price of steel is determined by demand.
In June 2008 the price of a metric ton of steel was $1,265. One year ago the price had fallen to $485 per ton. Today, the current price of 1 ton of steel is $170.
A little over 10 years ago, two decades of large debt creation suddenly hit a wall of people, companies, and countries being unable to pay that debt. Not wanting to admit that maybe government policies that created debt was not such a good idea, governments decided that the only way out of that debt mess was to create more debt, this time backed by the “full faith and credit” of those governments.
That idea was not exactly pouring gasoline on the debt fire—that was destroying economies and personal wealth—to put out the fire but it came close. Besides, there was a big country that had not created debt-based wealth that could provide the economic growth that the world needed. That country was China.
So the debt fiesta continued and with China building big ghost malls in huge ghost cities, many countries were able to also increase their wealth. Many countries were able to take advantage of this, like Australia, Indonesia and Brazil, which provided the raw materials for China
But China unfortunately just could not continue to build these ghost cities, particularly since the US and Europe could not continue to buy Chinese sport shoes and gadgets like they had before. Further, China’s debt-to-gross domestic product has gone up 30 percent since 2008. China now has a bit of a debt problem. So Brazil went from a 10-percent annual economic growth rate in 2010 to negative 3 percent in 2015. Indonesia was doing great with a 7-percent growth in 2011, not so much today with 4.73 percent. Even Australia has seen its economic growth cut in half, from 5 percent to 2.5 percent.
While the Philippines is not dependent on China, economic growth here was 8.9 percent year-on-year in the second quarter of 2010 to the current growth of about 6 percent.
The Philippines is not going to have a “bad” 2016. But there is some reality out there that cannot be ignored. For example, 2015 was the first year since 2009 that the companies on the Standard & Poor’s 500 list saw lower profits than the previous year. Now do you see why the US is so anxious to open Asian consumer markets like the Philippines to US goods and services through the Trans-Pacific Partnership?
Further, Philippine government spending will slow as the official election season starts, as will corporate expansion. But the headlines are that 90 percent of Filipinos are optimistic for 2016. Filipinos are always optimistic for the coming year. But this is an election year. Unless the source code for the computers that are counting the votes is fully examined, the Philippines may elect a new president with the same percentage of votes as Filipinos are optimistic. Any election problems might dampen all that enthusiasm.
Filipino businesses are also optimistic. A cheery outlook is part of the national character. For 2016, our optimism ranks No. 3 globally. In 2015 we also ranked No. 3 and for 2014 the ranking was No. 2.
The National Economic and Development Authority may be holding to its 7-percent growth forecast for 2016, but they get paid big bucks for being cheerful. A growth rate under 6 percent is more realistic.
The Philippine stock market’s Buena mano for 2016 came in, looked around and may have stolen a laptop on the way out the door if most of yesterday’s stock trading is any indication.
Year 2016 in the Philippines means to “expect the best, plan for the worst and prepare to be surprised.”
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.