Magazine-Cover Curse Takes on New Meaning in Asia

Magazine-Cover Curse Takes on New Meaning in Asia

Will Shinzo Abe’s plan to revive Japan suffer the magazine-cover curse? Might Benigno Aquino meet the same fate in the Philippines?

What both leaders have in common is everyone slapping the “-nomics” suffix onto their growth strategies. “Abenomics” has excited investors, not to mention the pundit class, with its aim of ending 15 years of deflation. The same is true of “Aquinomics” in a country long deemed the sick man of Asia, now an investment darling.

Such bouts of euphoria often end in tears: “Reaganomics,” “Rubinomics” and “Bushonomics” in the U.S.; “Thatchernomics” in the U.K.; “Berlusconomics” in Italy; and “Thaksinomics” in Thailand. Sometimes the reckoning comes in short order; other times it takes decades. The track records of all too many of these supposedly new formulas for prosperity are questionable.

The problem is hype versus real change. Having one of these splashy appendages added to your ideas tends to have the same reverse karma payoff as being on the cover of a large- circulation magazine. By the time a trend or ideology is popular enough to warrant such a tribute, the game is already up. So, is the buzz about the Japanese and Philippine economies overdone? It will be if leaders put too much stock in their own press.

Implementation, Stupid

All this gets at Asia (MXAP)’s big challenge is 2013: modernizing financial and political systems to make sure economies are moving in the right direction. Only that will ensure that today’s hype becomes tomorrow’s reality.

Asia has performed remarkably since 2008, avoiding the worst of the aftershocks from the U.S. financial crisis and weathering Europe’s debt mess. Growth has been consistent and rapid, asset markets buoyant, and consumer and business confidence positive. It’s vital to remember, though, that Asia’s success story in recent years is a macroeconomic one. Changes to the region’s micro-economy are lagging.

Japan is Exhibit A. Abe has gotten impressive mileage in currency and stock markets out of his determination to end Japan’s lost decades. Yet Abenomics is still a macro vision that lacks details. Abe needs to work fast to fill them in if he wants investors to stick around.

Xi Jinping’s blueprint also lacks clarity. Business leaders are optimistic that China’s new president can keep the second- biggest economy growing 10 percent a year without choking on the pollution it generates. It’s unclear how Xi will simultaneously shift the economy away from its dependence on exports, raise living standards and reduce the corruption fueling inequality.

There’s reason to worry that style will trump substance. In December, Xi’s first trip after becoming Communist Party head was to Guangdong province to draw parallels to a 1992 tour by Deng Xiaoping that spurred the country’s economic opening. Xi’s comments on the economy are surprisingly reminiscent of what Deng was saying back in the late 1970s. Reaching back to the Deng era for ideas that are obsolete in today’s world is China’s version of the U.S. cult of Reaganomics.

What works in one setting and time doesn’t necessarily translate to another. For example, slaves to the dogma that lower taxes cure everything forget that a more balanced and nuanced approach is required sometimes. China needs to embrace new ideas, not the unlimited armies of cheap labor, repression and forced industrialization that colored Deng’s era.

One reason investors are so intrigued by Aquino’s handiwork in the Philippines is how pragmatic it seems. Halfway through his six-year term, Aquino has increased taxes, arrested his predecessor on corruption charges, ousted the country’s top judge for illegally concealing his wealth and acted to reverse the overpopulation that perpetuates poverty.

Aquinomics’ Yield

This helps explain why a nation rated one level below investment grade is paying about 3.5 percent on debt due in 2023, almost 2 percentage points less than similar-maturity securities from higher-rated Indonesia. I caught up with Finance Secretary Cesar Purisima in Manila last week and posed the question of whether Aquinomics represents substantive change or a marketing slogan.

“The president believes that the best way to ensure our sustainability of what we’re doing is still really going beyond personalities, making sure we embed and institutionalize the reforms,” he told me. “Embed it through changes in legislation. Embed it through investment in our institutions, changing the way we reward and remunerate them. We’re starting that with our incentives-based compensation. More importantly, to change the people’s expectations. After all, it is the people that vote presidents to office.”

Officials in Japan or China tend to think they don’t have much to learn from the Philippines. But the kind of mindset of which Purisima speaks is missing from both Abenomics and Xi’s plans for China. It’s missing from Indonesia, as officials lose sight of why investors flocked to their nation in recent years. It’s missing from Malaysia, where the government perpetuates four-decade-old affirmative-action policies that hurt competitiveness. It’s missing from Singapore, where leaders seem to believe population growth is what matters most.

The key to succeeding is keeping perspective. Just because a policy direction is relevant at a given moment doesn’t make it a universal economic theory. Disciples of Abenomics, for example, forget that promising to end deflation means even less than making the covers of magazines. What matters is doing it and how you get there.

(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)

To contact the writer of this article: William Pesek in Manila at wpesek@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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