Mike Whiting, Managing Director of Sinclair James, reflects on the past decade’s economic ups and downs, and gives tips on how you should position your finances to benefit from the irresistible return of the East’s traditional status as a key economic zone.

(Article written for ANZCham Philippines' Oceania magazine, January 2010)

The millennium began with the “dot.com” bubble and ended with the even more calamitous “credit crunch” in which financial systems came remarkably close to imploding. Governments around the world have dug deep to stimulate flagging economies, with predictable and unpredictable repercussions. Yet throughout Asia’s overall economic growth has been relentless. Until the rise of European empires and transatlantic trade, China and India were the world’s largest economies, and now it is increasingly evident that they are restoring their former prominence. The significance of these events should not be underestimated – the changes are fundamental and long-lasting. I will try to outline some implications for us in the Philippines, how we might adapt to these new conditions, and hopefully draw some useful conclusions

1. Beware of “Experts” and Use Common Sense

The current situation means a horde of pundits predicting the end of the world, and an equal number predicting just about any outcome you care to consider. So who to believe?

Beware of “would be” experts and question where their experience comes from. I have over 25 years in the Financial Services industry, with the last 15 years in Asia – yet I’m still learning and only profess to offer general advice and hopefully common sense based on experience and practical grasp of economics. I am astonished at how many pundits parade opinions as if they are facts (such as “the US dollar is dead”). It is a lesson I learnt from my father to question anyone who presents you with an opinion as a fact, which presents huge dangers. Look at the facts and be sceptical when anyone declares something a “certainty”.

2. Understand the Rise of Asia and the Effect on World Resources

However we view it the future will see more influence from the East. Demographics suggest that Asia’s huge populations want to enjoy a better future, and this means more consumption of the goods previously enjoyed only in the developed West. These include cars, TV’s and air-conditioners, and also more travel, bigger homes and a richer diet. This extra consumption will in turn affect the future price of commodities from coffee, cheese and meat to satisfy more international tastes to steel and concrete to build shiny new cities. Recently McKinsey reported that by 2025 China would need up to 50,000 new skyscrapers, with 350 million new urban dwellers and 220 cities with over a million people. Europe currently has 35!

This is mind-boggling, but anyone who has been to China will understand the demographics and the fact that they have the political will and collectivist nature to get the job done. India, Vietnam, Indonesia and other developing Asian countries share much of this dynamism, whilst more advanced economies like Korea, Taiwan and Singapore are increasingly establishing world-class brands like Samsung, Acer and Singapore Airlines. This is all good news for the Philippines, Australia and New Zealand, who can provide raw materials and foodstuffs, as well as services like tourism, education and business process outsourcing.

3. Don’t Trust Governments or the Money They Print!

Did you anyway? Governments across the world – especially democracies – have to balance priorities and ensure their own survival. This can mean that tough but necessary long-term goals are abandoned for short-term political necessities, such as winning an election! Many governments have pumped huge amounts of money into their economies to rescue financial institutions and alleviate the severity of the downturn. However, the Western democracies have tended to borrow money to finance recovery, whereas China and other creditor nations not only had fewer financial institutions in trouble, but had deep pockets.

Government statistics also need to be read carefully, and we should also be wary of the value of money, as the US Dollar, Euro, Pound and so on are “fiat” currencies, i.e. not backed by a physical asset such as gold. So many of governments have racked up huge liabilities there is real questions behind the value of their currencies and the possibility of future inflation. This is one of the reasons that we have seen and will continue to see the increase in the price of commodities, and especially gold and other precious metals. In other words, tangible assets like commodities will increase in price as the demand for them goes up and as the value of currencies go down.

4. Tips for Surviving and Prospering in the “Brave Old World”

This article is intended to be positive, and the paradigm shift to China and emerging markets will present opportunities as well as challenges for your economic wellbeing. 

If we accept the macro picture, what should we do from a micro perspective to manage our personal finances? Here are some suggestions:

a) Invest in Commodities

Buy the raw materials or shares in companies that mine, grow, process or distribute energy, minerals, metals or food. As a sector it’s difficult to see how it can’t be a good mid-term investment. Also by buying the commodity it eliminates any variation between individual countries – i.e. if country A has an economic/political/environmental crisis that affects demand, the overall market situation will only be partially affected.

b) Manage Currency Exposure

Governments have printed money to shore up economies and banks, and have incurred debts owed in large part to the major creditor nations in Asia and the Middle East. This means potential inflation, volatility and vulnerability. So consider in which currencies you have income, expenses, assets and liabilities. 

c) Consider Asian Equities

Major Asian companies can now be seen as globally competitive, and having a sizeable share of an Asian market is a considerable asset. Also, as Asian currency exchange rates move from being low to assist export-led growth and are allowed to appreciate, the ability for them to acquire international companies increases. This has already been seen in sectors like automobiles, mining and steel. 

d) Look at Where Asian’s Will Spend

We can recall the massive influx of Japanese money into Australia in the 1980’s and 1990’s, and witness the Korean investment in the Philippines in recent years. This is likely to be eclipsed by similar investment from China, India and others in the next decades. This could mean opportunities in sectors like tourism and property.

e) Adjust to a World Without Easy Credit

Property prices are determined not only by supply and demand, but also by the availability of credit. The increased difficulty of borrowing after the sub-prime crisis has meant that homebuyers can’t afford as much as before. This means it will take time for prices in places like the US and UK to recover to previous levels, and might mean it’s best to review where you have property and consider moving your capital into more productive areas. 

f) Inflation-Proof Your Assets – or Cash is Crazy!

Banks are paying low interest rates, and they have recently been seen to have difficulties. Add to that the spectre of potential inflation, which erodes the value of cash, are there are compelling reasons to avoid holding large bank deposits.

g) Learn Chinese Language and Thinking!

You might find this daunting, but a few words of Mandarin, like the tourist Spanish or French you may have, can open many doors. The more serious understanding of the language could also be a solid asset for your children. Just as important is to understand Chinese and Asian thinking, the effects of ancient culture, humiliation by the West, the concept of “face”, avoidance of conflict and attitudes to race, religion, nation and family cannot be ignored by anyone serious about living and working in what has been called “The Asian Century”.