The TAMIM Global Equity High Conviction IMA portfolio has managed to achieve impressive results since its inception. In fact, over one and three years, the underlying fund has outperformed the major Australian based international equity funds. Having just returned from a trip overseas, Karl Hunt shares his musings on Abu Dhabi and The Philippines.
Global Investors Travel Blog Karl Hunt - November 2016 -
First stop Abu Dhabi, United Arab Emirates. Having lived and worked here for 14 years I know and love the place well. But after 6 years away the place has been transformed. It’s easy to dismiss the achievements by simply saying they had loads of oil money. The development and achievement needed good government, low corruption, vision and of course, financing capability. It is laughable to call it a third world or emerging market. It probably has the best infrastructure and standards on the planet. It has required ruthless uncompromising commitment to a grand plan. So you don’t see old run down buildings next to new towering high quality buildings. Whole areas are cleared and redeveloped in one fell swoop – not something you will easily see elsewhere.
So has the low oil price seriously undermined the relentless development or the business model entirely? Abu Dhabi always shunned the glitz and the requirement of Dubai for tourism. Abu Dhabi owns the oil, not Dubai. So Dubai needed to develop itself in to a regional hub for multi nationals to base their Middle East operations and it also needed the money from regional tourism and those passing through on the way to Europe, etc. Dubai has certainly achieved that. Abu Dhabi has quickly realised that it needs more than oil to survive and indeed to diversify away from oil. These plans have been in place for over 20 years through government investment offices such as Mubadala and Masdaar. Some of the more ambitious ideas to bring industrial production of things like cars to Abu Dhabi have yet to materialise but given the achievements elsewhere, I wouldn’t dismiss them.
The oil price fall consequence is more obviously seen in the visible fall in the number of Western expatriates. Jobs in oil & gas have fallen by 50-60% over the last 6 years, and this has a knock on effect on those that service them – teachers, doctors, financial advisors, lawyers, etc. The other big sector taking a knock is construction but there is always a lag as big projects come to an end, so more job losses can be expected in this sector. So companies like Carillion (UK), Balfour Beatty (UK), Schlumberger(US), Technip (Fra), Saipem (Italy) have all been affected.
A massive expansion of the airport has seen passenger arrivals soar - up 17% last year alone. Hotel expansion in town has meant that travellers looking for a stop over or looking for winter sun are well catered for. With the demise of the Egyptian and Turkish tourist industry, Abu Dhabi and Dubai make perfect sense as a winter sun destination for Europeans. The massive expansion of hotel rooms means that high quality 4 star rooms can now be had for US$60 a night. It quickly becomes apparent what you spend extra on the airfare you get back on cheaper hotel and other holiday costs.
So the Abu Dhabi government has managed the whole expansion with the help of international city planners (US and European companies in the main) and international and regional contractors – many well known European names can be found partnering with local firms in construction and business services. These companies’ stock market ratings have already been hit and now have to seek new work elsewhere. As you would expect government budgets are coming under big strain and there is now talk of an expatriate income tax rate now, petrol prices subsidies have been eliminated and a modest level of VAT is expected.
On to Manila, Philippines. My first time here. A country that benefits from its historic close ties to the USA, so that even the very poorest speak remarkably good English. All countries these days seem to exhibit “two economies” side by side. The “middle class, international economy” and the “local economy”. Nowhere is it more evident than here in Manila. Walking around the glitzy Greenbelt area of Makati in Manila you could be in any major city in the world, where import duties make most international branded goods unattractive for the international traveller and imported cars ridiculously expensive for locals. But walk a few blocks and you will see the local economy reflecting very low local wages where a ladies dress can be bought for US$6.
The new President Duterte (the Donald Trump of the Far East?) has only been in office for just over 100 days and is already courting international controversy with his war on drugs and outspoken comments on his international allies and neighbours. The drugs problem was clearly out of control with all the accompanying crime that comes with it. Duterte has ruthlessly gone after the gangs with a shoot to kill policy. It has been so effective that drug dealers willingly turn themselves in for fear of being shot dead! As a consequence, his approval ratings amongst locals are very high. The Philippines has been an attractive place for multinationals to invest. It has a large local population (over 100m consumers), well educated workforce where English literacy levels are very high, and salaries very low. But western multinationals these days have to be attuned to politics, ethics these days and the Duterte government is already causing disquiet amongst them. They do not want to be seen aligning themselves to a government that carries out extra judicial killings. They have shareholders to answer to and corporate ethical standards that they have pledged to adhere to. Duterte clearly needs to tone down the rhetoric, use more appropriate language (not swearing might be a good start) and be seen to act as an international statesman rather than a vigilante gang leader. Otherwise international investors may simply choose another nearby country for their next factory, no matter how good the attractions of The Philippines are.
Because of its well educated workforce, good English skills and pleasant temperament over 10% of its population work overseas – mainly the Middle East, and the richer Asian states (Singapore, HK, Taiwan) – though even the UK’s NHS goes to the Philippines to hire nurses. A large proportion of their earnings are repatriated back to the Philippines. The company of choice, and the company with the largest network throughout the World – including the Philippines (even in the most remote parts you will see their distinctive yellow sign), that is used to repatriate this money is the US company, Western Union. Anyone who has used Western Union (WU) I believe would be impressed by its ease of use, competitive exchange rates and its ability to send money quickly and securely to your relatives and friends in faraway places. In the short term its business has been affected by the reduced number of third world workers in places like the Middle East. In a sense it is a play on globalisation. Of course there will be the inevitable ups and downs in this trend. As a result of the hit to its share price and overall rating, we recently bought a position in the company believing this to be an attractive entry point for a company with a great global franchise and reach, that will continue to benefit from globalisation and the movement of people.
There has been some alarm at the recent trade statistics from the Philippines which shows a significant deterioration in the current account. However, on closer inspection you see that most of the deterioration is due to the importation of capital goods – machinery for newly built factories, rather than consumer goods. This will ultimately reverse as the capital goods imported in turn are used to produce end goods for export. So nothing to be alarmed about.
Just travelling around Manila I was struck by how in need the older parts of Manila needed redevelopment. These are right on the coast, and could ultimately become the most prime real estate in the city given the right development ideas. Some of it appears to have begun, but before that they do more they need to develop the seafront and clean up the sea to enhance the appeal! So further investigation is required on plans and with local real estate companies to see what potential investment opportunities there may be.
The information provided on this website should not be considered financial or investment advice and is general information intended only for wholesale clients ( as defined in the Corporations Act). If you are not a wholesale client, you should exit the website. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions. Where the website refers to a particular financial product, you should obtain a copy of the relevant product services guide or offer document for wholesale investors before making any decision in relation to the product. Investment returns are not guaranteed as all investments carry some risk. The value of an investment may rise or fall with the changes in the market. Past performance is no guarantee of future performance. This statement relates to any claims made regarding past performance of any Tamim (or associated companies) products. Tamim does not guarantee the accuracy of any information in this website, including information provided by third parties. Information can change without notice and Tamim will endeavour to update this website as soon as practicable after changes. Tamim Funds Management Pty Limited and CTSP Funds Management Pty Ltd trading as Tamim Asset Management and its related entities do not accept responsibility for any inaccuracy or any actions taken in reliance upon this advice. All information provided on this website is correct at the time of writing and is subject to change due to changes in legislation. Please contact Tamim if you wish to confirm the currency of any information on the website.