I’m a big fan of the Asia Pacific region, and for good reason. Growth is nothing short of spectacular, with no signs of slowing any time soon. The recent figures out of China, for example, we’re incredible. However, I’m not naive. Despite the incredible success that the region is enjoying we still have to be cautious and prudent when looking to invest our capital.
That being said, let’s take a brief glimpse at the Philippines.
While the “developed” world wallows in a sea of debt, unfunded liabilities and either outright ostracism from lenders (e.g. Greece), or an impending ostracism of lenders (as is the case for BritEuroYanks), Asia Pacific is on the rise.
If you are a regular reader of ours you are well aware of the opportunities that exist outside of the mainstream markets. You are likely already wary of their respective salesman, who peddle nonsensical “market speak” to the populace via the sitcom-like news channels in much the same way drug dealers peddle their merchandise in back alleys.
That the European and US markets remain in the headlines and on the books of so many portfolio managers is frankly still surprising to me. Anyone that tells you that sovereign debt risk in the US and Euro zone is “contained” needs their head examined in my humble opinion.
That being said it’s probably best to leave these fund managers and their cohorts alone to their own devices. Leave central bankers to keep pushing their buttons, continuing their ruinous policies, and focus on what’s important for us. After all, we are not here to criticize, laugh, poke fun at or otherwise mock (…maybe just enough to amuse our admittedly dark sense of humor), but more importantly to make rational and lucrative decisions regarding our capital and lifestyles.
The Philippines – How to Structure a Bond Auction
What used to be known as a mere backwater hell-hole filled with impoverished people scrapping it out to find their daily rice bowl, the Republic of the Philippines, now the 4th largest economy in South East Asia, has just issued a landmark bond deal. The Global Peso Bond Fund is a Ps44.2 billion (US$1 billion) long-dated 10 year deal denominated in Pesos, settled in US dollars, with its interest payments indexed to the peso spot rate.
Peso "Appreciation"
- Paying a 4.95% semi-annual coupon, these 10 year notes were rated Ba3 by Moody’s and BB by S&P.
With the pesos rise closing in on 9.5% in the last 12 months, and expectations of it rising another 3% by year end, the demand for these bonds was “huge”.
How huge?
The deal attracted an order book of $13.5 billion. Remember they were raising a mere $1 billion. As such most investors walked away disappointed.
The Philippines has proved a sophisticated borrower when accessing international markets three times this year alone. In January they went to the market with a US$1.5 billion dollar-denominated tranche, and then with another US$750 million issue in July. They also did a ¥100 billion bond issue earlier this year.
Would we buy these bonds?
Well let’s answer that with the caveat that we are typically reticent to lend our hard-earned money to faceless governments… ever… anywhere. That said, we do couple this with a very strong philosophy of capitalism. In other words, if we can make money buying something that has value in order to sell it at some point in the future for a tidy profit, we’ll likely do so. Fortunately, we have no internal conflicts here, since we see no reason to place our money into Philippine government bonds, for what amounts to a paltry return, when there are individual companies in the region that present us with far more compelling reasons to buy them.
Conclusion
What I’m highlighting is the very real fact that many of the emerging and frontier markets of the world are not the backward places that many still believe them to be. They are growing like kudzu, and while there are risks in every country, they can be mitigated intelligently. The resulting returns are often an order of magnitude greater than those which investors in the developed, or “safer” markets experience.
Live Like You Mean It,
Chris Tell
