Comparing apples and mangoes

Comparing apples and mangoes

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Category: Opinion

Published on Wednesday, 01 May 2013 20:03

Written by John Mangun

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IN Monday’s issue of the BusinessMirror, Sen. Manny Villar cited the comments of Joachim von Amsberg of the World Bank who mentioned all the positive things that the Philippines has, such as natural resources, skilled labor and a strategic location, and yet had never realized its full potential for economic development.

Some years ago, I wrote about a long-term study showing that cultural differences have as much to do with the differences in economic development as other “hard-asset” similarities such as education, labor force and resources. Non-Catholic countries in Europe developed faster than Roman Catholic countries because of different belief systems regarding a general work ethic. Muslim countries that follow a stricter Sharia law-based system are the least innovative and economically progressive nations in the world. Japan has been stuck in economic stagnation for decades, in part because the Liberal Democratic Party has ruled that country for most of the last 60 years. Japanese culture is slow to adapt to and force change.

Geography and topography also contribute a great deal to economic development. Take a map and compare North America and Europe. Notice that Europe runs east and west and has the same basic temperate climate. The distance between Lisbon and Moscow is virtually the same as between Calgary and Mexico City. At noon on Tuesday (Manila time), the temperature in Moscow and Lisbon was exactly the same—10 degrees. However, it was zero degrees in Calgary and 18 degrees in Mexico City.

Geography, more than language, customs and distance, limited the economic development of North America because there was very little exchange of ideas between the people living there.

It is fascinating how so-called experts always want to compare the Philippines and Thailand. Thailand has 1,430 islands that are mostly uninhabited except for the major tourist destinations. The Philippines has over 7,000, most of them inhabited. You can load a truck full of goods and drive between the five major Thai cities in 24 hours. In the Philippines that would be called “The Amazing But Impossible Race.”

There was an aviation expert who recently talked about how the country should transform itself as an airport hub so it could boost tourism and businesses. Geography guarantees that that will never happen. Hasn’t anyone figured out that the Philippines is an archipelago 600 miles away from the nearest continental land mass?

Tokyo is about 5,400 miles from Los Angeles. Manila is 7,300 away from the US. It takes only about two hours more to fly from Singapore to Tokyo to Los Angeles than to fly from Manila to California. Further, flights from Singapore can also stop in Hong Kong, Taiwan and Korea. That is why Singapore is an airline hub and not Manila.

The same faulty comparisons apply to our Philippine stock market. Filipinos may be gamblers, but they are not speculators. Gambling requires skill and luck, and Filipinos like the idea of testing the goddess of luck; speculation requires skill and a lot of work at risk-management. Filipino businessmen would rather invest in something they have a high degree of control over and that is not the stock market.

Other stock markets allow investors to buy on credit. Thailand allows you to deposit 15 percent of the buying price; the Philippines, 50 percent. Further, you can trade almost every Thai issue on credit. Here, about 50 stocks are eligible for margin. Trading on margin would effectively double the amount of transactions and the amount of investment in the Philippine Stock Exchange (PSE). That could double the market-capitalization size of the PSE.

Another reason for the comparison of our stock market with others is the amount of shares in public ownership. The percentage of shares in the hands of the public for some of our large companies is 10 percent to 20 percent. Our “public” companies anywhere else would be considered closely held corporations. One effect that that has is increasing the price-earnings ratio (PER) to comparatively high levels, as there is a shortage of stock available. It is the law of supply and demand. We have large companies that are 90 percent closely held. These shareholders are never going to sell out just because the price and PER are high in comparison to other stock markets. And normal investors who want to own the company’s stock are willing to pay a higher PER premium.

If you are going to compare apples and mangoes, it is good to remember that apples are red and mangoes are yellow. Apples need colder weather; mangoes, warmer. Yes, they are both fruits and grow on trees, but that is where the comparison stops.

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. My web site is www.mangunonmarkets.com and Twitter me @mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.

Comparing apples and mangoes