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What Mar Roxas, et al can learn from Jojo Binay
He must get under their skin. A lot. By them I mean the good governance (GG) club comprised of Mar Roxas, the Liberal Party (LP) headed by Senate President Frank Drilon and Budget Secretary Butch Abad, civil society and Big Business. As to why, after four years under an honest leader like President Noynoy Aquino (PNoy), who has been pushing for institutional reforms in the bureaucracy with some modest gains, the Filipinos seem set to throw their lot with someone in 2016 who does not come from their flock?
By 'someone' I mean Vice President Jejomar Binay, whom they regard as an apostate to their gospel of GG. He has the highest approval rating of any public official in the land including that of PNoy. The latest nationwide poll conducted by the reputable Pulse Asia shows him way ahead of rival contenders for the presidency. Even if you grouped together the support for Grace Poe, Mar Roxas, Allan Peter Cayetano, et al, Binay would still come out on top.
And nothing seems to be able to slow him down from claiming the presidency in two years' time. Not the revival of old corruption charges against his wife, the former mayor Dr. Elenita Binay, nor allegations of misuse of PDAF by his daughter who is in Congress, not even allegations of overspending on a public car park by his son, the current mayor of Makati, seem to break his stride. To top it all off, the three siblings of PNoy have all but come out in support of Binay's candidacy.
Talks of a merger between the LP and Binay's party UNA as well as possibly extending PNoy's term are all aimed at one thing: ensuring the survival of the Liberal Party as a fighting force into the next presidential cycle. But these demonstrate just how desperate the GG crowd is at the moment with elections in 2016 on the horizon.
It's one big conundrum that bedevils them. If PNoy has proven that the GG works, why do/es his heir/s apparent appear/s to be languishing at the bottom of the presidential derby? And corollary to that, why is Mar Roxas, his partner in arms, not able to gain the support of more people?
It is no secret that Big Business supports the candidacy of ABB (Anyone But Binay). They are represented by Bill Luz, the former executive director of the Makati Business Club, who now heads the National Competitiveness Council, which is geared to lift the country's competitiveness in the World Bank league tables, by reducing redtape as measured in the Doing Business Survey.
It is Big Business, also going by the moniker "civil society" that have been trying to oust the Binays from their perch as rulers of the Central Business District of Makati since the people power revolution ensconced them in city hall back in 1986. It is no secret that it is this group that Secretary Mar Roxas associates with, given his own family's commercial background as owners of the Araneta Centre in Cubao.
Ironically, the way the Binays have fought off the pressure from the business community has been through an inclusive growth and development agenda in the city, something that the GG club have yet to implement elsewhere. The Binays have made sure that the business community paid their fair dues in the form of city and real property taxes to ensure that the lower income classes benefited from the growth of the city.
The problem for the GG crowd is that the Binays, despite being considered 'stationary bandits', have proven to be benign autocrats of Makati, fostering an effective program of human development among the poorest in the city that has become the envy of the rest of the nation, without sacrificing the growth and competitiveness of the city.
Indeed, in Bill Luz's most recent competitiveness rankings for cities and municipalities in the country, Makati has come out on top. Now how can a city which is supposedly run by a corrupt, dynastic, autocratic family remain on top of competitiveness surveys and produce human development indicators that are the 'best in class'?
The answer is not good governance, but 'good enough' governance.
Wait. Hold-on, you might say. The economic vibrancy of Makati comes from its business community. They are the ones who make Makati great. You would only be half right in thinking that. What makes a city competitive is the regime of taxes and regulations, as well as the quality of services offered to residents and businesses. The economic vibrancy of a city can be attributed to the business sector, and for that Makati only comes in second in Luz's study.
At the national level, we have seen the limits of GG in formulating what Chalmers Johnson called a "plan rational" for the country to govern and expand the economic spheres of activity through robust, coherent policy and regulation.
If you look at the national economic agencies of government, they are in total disarray. The country is heading for, or perhaps already is in, an energy crisis, with rotating brownouts now a reality in several parts of the country (coming to your neighborhood soon, unless PNoy invokes emergency powers, says Energy Secretary Petilla). Power rates are the highest in the region and yet regular power outages may be in the offing in Metro Manila next year. This will severely impact the country's competitiveness.
Then there is the so-called "ports crisis" as the logistics industry is up in arms with cargo unable to leave Manila's ports due to no integrated master plan for Manila and the surrounding regions. The LTFRB has been in conflict with the MMDA, unable to process applications for truckers on time, which has led to the prevalence of unlicensed operators. Provincial buses are another cause of paralysis.
We turn to rail policy and here, it was not too long ago the manager in charge of maintaining the Metro Rail Transit came under fire for favoring bidders with close relations to his family. Frequent breakdowns and accidents have resulted causing the riding public to suffer delays and lower productivity due to inefficient public transport.
The PPPs that came into effect this year were improperly co-ordinated causing great aggravation to the motoring public as roads and elevated skyway projects have simultaneous commenced, almost in a mad rush to leave a physical legacy after PNoy steps down from office.
The airports have notoriously been a source of shame for the country being labelled the worst in the world. With the NAIA-3 becoming fully operational, some of the congestion will be eased, but only slightly. To cope up with increased demand, another runway at Sangley Point needs to be rushed. It took a decade to get NAIA-3 finally running, how long will it take for Sangley to come on stream?
Shifting to telecommunications and internet policy, we have one of the slowest, if not the slowest internet speeds in the region. Congestion experienced by networks has been the subject of much investigation in the senate as complaints of bad service permeate. It seems that the regulatory body in charge has failed to set the proper framework to ensure that services offered by private providers was adequate to meet the needs of an increasingly technology-connected population. The high cost and poor quality of service again affects our global competitiveness.
Transportation, information technology, communications, and energy policies all play a significant part in expanding the economic activity of a nation and are a major input to the cost of basic goods. Without robust regulatory agencies staffed with people who have not worked for the big players or are in cahoots with them, supported by a good attraction and retention policy, the result is what we see.
Secretary Mar Roxas was in charge of the Department of Transport and Communication for a good period of time. The policy frameworks in the areas of air, port, rail, logistics, information and communication were within the scope of his portfolio. The current secretary was apparently hand-picked by him. The GG agenda seems to have stalled if not utterly failed to set the right framework for future growth. Electricity, transport and communications policies are all in shambles.
Yet, PNoy's presidency has almost solely been devoted to improving the expenditure side of government through reforms in the Department of Budget and Management. For an administration to be so focused on the efficiency of government expenditure means it concerns itself with only one fifth of our economy (which is what the national budget represents). The economic regulations, however, affect the whole economy because of their impact on both the public and private sectors.
The reason why PNoy was so focused on reforming the budget process? He wanted to prove that his GG mantra works. And yet, all that happened was a slowdown of expenditure in the first two years of his presidency, leading to a halving of economic growth. His budget department tried to fix this with the Disbursement Acceleration Program, which has now gone down in flames.
The LP through Sec Abad is now pushing for bottom-up or participatory budgeting through local government units with Mar Roxas, now secretary for the interior and local government in charge of handing out grants to them. Can the GG club redeem itself, following the DAP debacle in the lead up to the elections?
The problem with this scheme is that expenditure is only one side of local government success. You need a proper taxation regime in place. When Jejomar Binay spoke before the influential Centre for Strategic and International Studies in Washington, D. C., he narrated the challenge he faced when he first became mayor of Makati. The city's finances were in disarray, experiencing chronic deficits. He needed to fix it through proper revenue measures to improve the quality and availability of services.
PNoy entered Malacanang Palace with a "no new taxes" pledge, which has resulted in no new revenue measures being passed except for the sin tax law, which Frank Drilon championed in the senate. Unfortunately, this pledge has limited his ability to fulfill his social contract with the Filipino people.
Meanwhile his acolytes in the senate keep proposing measures to erode the tax base by increasing exemptions, or reducing tax rates. They also want to increase the salaries and benefits of government employees, en masse, thereby putting upward pressure on spending. These senators, who have not had a day of executive experience in their political lives, would not know how to balance a budget if they were to succeed PNoy in 2016. And yet each of them would vie for the mantle of GG.
The social contract came with the age of enlightenment in Europe. The covenant entered into by the state and industry was one whereby taxes would be imposed on businesses; and in return, the state would provide basic public education and sanitation to provide a healthy, literate workforce for the factories being built during the Industrial Revolution. Here we are in the 21st Century and the proponents of our social contract do not understand the essential bargain required to educate masses with the skills needed for the Information/Digital Age.
The GG club's approach to higher education is to shut down erring schools. PNoy said he charged CHED Chair Licuanan with closing the nursing schools who were producing graduates that did not pass the nursing board exams. She then proceeded to form "commandos" to do just that. Three years later, and according to the government's own statistical report card, the proportion of board passers has actually declined, not risen. What happened here? Did they really go after erring schools, or just the ones that posed a threat to the big universities?
Meanwhile there is still not an adequate level of financing for higher education in place that would make tertiary education an entitlement, and lift the quality of the sector. Our universities continue to slide down the global league tables.
In each of these policy spheres, the responsible agencies have been susceptible, if not downright captured by large industry players whom they were meant to regulate. Policies are not being developed by independent agencies. As a result, the needs of clients and the nation at large have not been looked after. There is no long-term view to policy. In addition, the technical and leadership capacities of people running these agencies is severely hampered by a lack of proper resourcing.
For the economy to expand rapidly, it requires rational players in economic agencies who come from the best and brightest. These individuals need to be selected on the basis of merit. They need to have the resources to be able to fulfill their mandate. Our competitiveness and future economic vibrancy depend on that happening.
Coming back to Jojo Binay. If you look at the performance of his own housing portfolio through the government's own statistical scorecard, his agencies look like they are hitting their targets. This is again another feather in his cap—unlike the GG scorecard, which shows PNoy's government failing in all but one indicator of the World Governance Indicators, the one for political stability, which has come about through his popularity and taking care of the military and police through the budget.
As we come to the final third of PNoy's presidency, it does not look like the GG goals are going to be met, nor do we find a rational set of policies being laid down to govern the economy's expansion. For investments and jobs to be created, we need to have a high performing economic bureaucracy taking charge of all these policy areas. Unfortunately, so far we have not built that capacity and the results speak for themselves.
What Mar Roxas, et al from the GG club can learn from Jojo Binay is the following:
- Governance is in the doing, not the talking.
- Governance is about developing rational, long range policy, independent of vested interests, i.e. the major players in industry.
- Governance needs to be felt on the ground for it to be sustainable.
The Binays represent a formula of benign, "good enough" governance that has worked at the local level for over two decades. For Mar and the rest to offer a viable alternative to him, they will need to provide us with concrete evidence that their formula for GG has done what Binay and Makati has been able to achieve. Sans that documentary proof, they might as well throw in the towel.
Our experience with PNoy has exposed the limits of GG. The thesis that kung walap corrupt, walang mahirap. Binay on the other hand has proven the success of "good enough" governance. It has proven to be more appropriate given our stage in development to be content with setting the framework for business to thrive and expand, while ensuring that they pay their fair share to make this growth inclusive.
It doesn't matter that he has acted like a "stationary bandit" preying on the rich to give to the poor, while ensuring that the rich still get to keep their wealth and build their empires. It doesn't matter that the Binays have amassed wealth in the process and have turned into a formidable political dynasty. This has allowed them to take a long-term view of development and govern the city without being beholden to the big end of town.
If the GG club want leaders who are honest, yet able to win elections without becoming beholden to vested interests, they need to initiate campaign finance reform and provide state funding for political parties. The only other option is what the Binays are doing in Makati.
Economic agencies are a rich source of campaign finance through the licenses, franchises and policies they craft that can easily be made to favor the big players. The reason they are weak in a developing and emerging country context is precisely to allow political bosses to use them as a source of campaign donations. You see the system is not dysfunctional. It is purposefully built to serve their needs. The only way to fix corruption and incompetence in these agencies is to finance political parties so that they do not have to depend on them as a source of funding. Then invest in their capacity and upkeep.
If we don't fix this, then we should not complain that our choices come election time are so limited.


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Nike produced a really cool ad for the Nike Free Run+ shoe. The Act Hifana does a live performance by bending the flexible sole of the shoe. Cool concept for an ad and it looks like they had a great time producing this.
Pieter from todayandtomorrow.com sums up how they did it:"…the shoes used in the video are the real sound controllers. Tomoaki Yanagisawa of 4nchor5 la6 was responsible for the hardware part. He added flexible and accelerometer sensors to the shoes. Daito Manabe of rhizomatiks did the sound programming with Max.
They were both commissioned by Wieden + Kennedy Tokyo for this project."
via todayandtomorrow

subset: commoncrawl


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Open a newspaper or switch on the television and the news is the same – the Gross Domestic Product of the United States has seen its largest dip since 1982. In January we saw the single greatest loss of jobs since the early 1970s, and consumer confidence has hit a quarter century low. But what does this all really mean, and how did we get here?
Perhaps like many, you've postponed actually trying to understand the economy. Maybe it's only been recently that you've really wanted to unravel acronyms like GDP or CPI and cast an interested eye towards concepts like mortgage-backed securities and collateralized debt obligations. How exactly are they to blame for this mess we're in? The funny thing about economic literacy is that it seems to vary inversely with the state of the economy itself. That is, when the economy turns down, interest in the economy grows.
So what is "the economy?" What makes it tick? And why should you care? Scottish essayist and historian Thomas Carlyle once called economics "the dismal science," a phrase that rings true for many of us who have been lulled to sleep in front of blackboards thick with supply and demand graphs.
Economics, however, has far more to do with people than it does with graphs and numbers, and once unraveled can actually be a pretty interesting topic. American economist Gary Becker once said that economy was "the art of making the most of life," which actually gets closer to the heart of the matter.
Economics is about scarcity and the choices we make as a result. It's about the fact that there isn't enough to go around – not enough resources, enough time, enough stuff. And because everyone can't have everything they'd like to, we all have to make decisions about how to spend our time and resources so that we get the best use out of them, the most bang for our buck. That's economics.
The idea of scarcity is a basic concept, but one that is key to understanding the economy. Let's say I love black olives, but for some reason – global warming, perhaps – black olives are scarce this year. There are just not enough olives to go around – not enough to make olive bread or Greek salads, not enough for our pizzas.
What then will happen to the price of olives? If enough people want olives, then the price for them will increase. This, for instance, is what happens when oil-producing countries decrease production of oil – because the supply of oil drops while the demand remains high, the price goes up.
Now, suppose you are a farmer who grows figs, but you could just as easily farm olives. You may very well choose to do so as a result of these economic conditions – because you can make more money growing olives. And that's why the economy is more about people than it is about graphs.
One way or another, we're all fig farmers – we're all making decisions daily about what we value, who we want to represent us, and how to best spend our resources. If the economy is essentially the sum of our collective choices, then perhaps we should strive to make the most informed decisions we can. Stay tuned to this space for weekly installments of Economy 101, in which we will unravel economic basics in clear and simple language. No graphs, I promise.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.


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Royal Statistical Society Guy Medal in Bronze
The Royal Statistical Society Guy Medal in Bronze is named after the distinguished statistician, William Guy FRS. The medal is:-
... intended to encourage the cultivation of statistics in their scientific aspects and promote the application of numbers to the solution of important problems in all the relations of life in which the numerical method can be employed, with a view to determining the laws which regulate them.Fellows or non-fellows of the Royal Statistical Society who have communicated papers of special merit to a section of a local group of which they are members or have published such papers in the journals of the Society are considered for Bronze Medals. Preference is given to those under the age of 35.
1936 W G Cochran
1938 R F George
1949 W J Jennett
1962 P Armitage
1966 J Durbin
1967 F Downton
1968 R L Plackett
1969 M C Pike
1970 P G Moore
1971 D J Bartholomew
1974 G N Wilkinson
1975 A F Bissell
1976 P L Goldsmith
1977 A F M Smith
1978 A P Dawid
1979 T M F Smith
1980 A J Fox
1982 S J Pocock
1983 P McCullagh
1984 B W Silverman
1985 D J Spiegelhalter
1986 D F Heny
1987 P J Green
1988 S C Darby
1989 S M Gore
1990 V S Isham
1991 M G Kenward
1992 C Jennison
1993 J A Tawn
1994 R F A Poultney
1995 I Johnstone
1996 J N S Matthews
1997 G O Roberts
1998 D Firth
1999 P W F Smith and J Forster
2000 J Wakefield
2001 G P Nason
2002 G Molenberghs
2003 Peter Lynn
2004 Nicola Best
2005 Stephen Brooks
2006 Matthew Stephens
2007 Paul Fearnhead
2008 Fiona Steele
2009 Chris Holmes
2009 C Holmes
2010 O Papaspiliopolous
2011 N Meinshausen
2012 R Samworth
2013 P Fryzlewicz
2014 M Yuan
2015 Dr J Lv
2017 Yingying Fan
2018 Peng Ding
2019 Jonas Peters
MacTutor links:
Royal Statistical Society
Royal Statistical Society, etc:
Royal Statistical Society Guy Gold Medal
Royal Statistical Society Guy Silver Medal
Royal Statistical Society Guy Bronze Medal
Other Web site:
Royal Statistical Society Web site


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Fifteen years ago, when Mark Mobius, executive chairman of Templeton Emerging Markets Group, first visited China, the swath of land across from Shanghai's historic waterfront, the Bund, just lay there. Today, he says, that same place is a glitzy urban center, populated by skyscrapers that can rival, if not surpass, any of those that tower above the ground in the world's largest metropolises.
"In just a short period of time, they've transformed what was essentially farmland into a major city, and this kind of construction just continues everywhere in China," Mobius says. "It's exciting to see that happening, to see the infrastructure that's being built, to see the offices and the apartment buildings coming up. It's just going to continue."
For Mobius, the forecasts for a slowdown in China's economic growth are inconsequential. The most dire of pessimists are forecasting a 7% growth rate for the country (Mobius is betting on 8% to 8.5%), but in today's world, where nations are falling apart, that's still a pretty impressive figure, he says. Not to mention that "the Chinese government has many policy tools that are not available to other countries, including a tremendous banking sector that they can rev up in order to increase lending, $3 trillion in foreign currency reserves, an economy that continues to attract foreign investment and a population that has high savings."
The percentage of exports going from China into developed nations may be declining, but the demand for products and services within China is increasing. For a dedicated investor like Mobius, it's particularly exciting to see manufacturers that have focused on exports now set their sights on the domestic market. It is this next wave in China's growth trajectory that he's going to capitalize on through investing in multinational companies, as well as local players that are going to play an important role going forward in the Chinese economy.
"As China emphasizes domestic consumption, the economy is going to accelerate again, and it's going to be very attractive for foreign investors, both direct as well as portfolio investors," Mobius says. "The demand for products in China is growing exponentially, whether that's for BMWs or Volkswagens, for leisure and travel, or fast food—it's all expanding very rapidly."
Mobius' focus on the consumer sector is one that a growing number of investors who believe in the long-term potential of China as an investment destination share. He is also bullish on commodities, a sector now out of favor largely because of the China slowdown, but one that's undoubtedly going to come back, fueled by domestic growth in China.
"The consumption of oil by emerging markets is almost equal to that of developed nations, and China is a big part of that," he says. "Chinese companies need coal; they need oil, and as the demand for consumer goods like washing machines, air conditioners and fridges soars in China and other countries like India, you're going to see an increasing demand for power."
It goes without saying that today—and Mobius would be the first to admit it—investing in China is no great secret. But how one does it is what's important. There are many IPOs coming out of China, and Mobius believes that separating the good opportunities from the bad is one of the greatest challenges that investors today face. But he also believes that going the extra mile and researching them properly and thoroughly, and looking at China beyond its obvious, gigantic stature in the global economy, is what's going to take investors forward to where the opportunities really lie.
The experts featured in this story have all had long relationships with China and have watched with admiration as the country has grown and transformed. Here, they share their investment philosophies and approaches to zeroing in on the best opportunities that China's focus on domestic growth can offer.
Brien O'Brien, CEO, and Jonathan Brodsky, managing director, Advisory Research Funds (ARI): Quick In, Quick Out is the Way to Go in China
Driving around the Southern Chinese city of Shenzhen today feels very much like driving around Newport Beach, Calif.—give or take a few years.
"There are palm trees everywhere. Everything is brand new, exciting and vibrant," says Brien O'Brien, CEO at ARI. "It's impressive to think that just 15 years ago, most of these cities were little more than one-horse towns."
Cities like Shenzhen are not only a testament to the impressive economic and structural changes that have taken place in China over the past years, they are also the result of the tremendous amount of wealth creation that has happened and continues to happen there—an important facet of the Chinese economy that's particularly exciting to O'Brien.
"It's been very interesting to see a communist country become the Wild West of capitalism," O'Brien says, "and that's given me some very good feelings about investing there."
Although O'Brien has little doubt about China's potential as a long-term investment opportunity, he is also the kind of investor who believes he's better off with a quick in/quick out kind of investment strategy: one that doesn't bind him in any lasting way, but still makes the most of various opportunities that come with increased wealth generation and changing consumer tastes.
"The political structure, the rule of law in China—they're not very comforting to me, and I don't want to have to subject myself to them," he says. "That's why I don't want to create real assets in China, but rather use the economy to my benefit."
That means having as little as possible to do with sectors of the economy that the Chinese government is involved in, but everything to do with businesses that evidence the best of the consumer-driven economy China is increasingly becoming, in both a direct and indirect way. ARI sees the best opportunities in companies that are listed on the Hong Kong, Tokyo, Singapore and U.S. stock exchanges—companies that have strong links to China in terms of revenue generation, but are not in sectors where the government has a large say.
Companies like Yue Yuen, the largest global manufacturer of footwear for premier sports brands Adidas and Nike, is a prime example of what ARI is looking for in its China exposure. With a $5.5 billion market cap, a modest PE ratio of around 10 times and a very strong balance sheet, the company's business is booming because of the very high demand for Nike and Adidas apparel in China, says Jonathan Brodsky, managing director at ARI.
"So instead of buying Nike and Adidas directly, we buy Yue Yuen as it relates to consumer growth in China," Brodsky says. "The company is also very well-run and has a high level of transparency because of its relation to Adidas and Nike."
Japanese food company Hokuto is another business that fits ARI's needs. Hokuto is Japan's leading producer of high-end specialty mushrooms and has invented several kinds of very specific mushroom types that are integral to Chinese food.
"The company has warehouses in Taiwan, and we see Taiwan as a window to long-term opportunities in China," Brodsky says. "We also believe that the consumption of these specialty mushrooms in China is going to explode, as people have more money to spend on food and other things."
Being able to scout around for opportunities like Yue Yuen and Hokuto—high-quality businesses that benefit from a stable and increasing supply of orders, and that produce goods they can sell in the Chinese market—is key to getting the best out of China, O'Brien says. They are also not likely to be as affected by the general slowdown that's been forecast for the Chinese economy.
"We feel that even with slower growth rate forecasts, the China dynamic is in place. Even if it's not going to be as smooth a trajectory as everyone would like, we don't think that the consumption dynamic is going to be affected," he says. "Nevertheless, we do want to stay away from government influence and look to the individual consumer. We look to align ourselves closely with local shareholders and management teams, investing in companies with high levels of corporate governance and financial transparency."
Robert Horrocks, CIO, Matthews International Capital Management: Individuality and self-expression are growing in China
Robert Horrocks, CIO of Matthews International Capital Management and manager of its Asian Growth and Income Fund (MACSX), first visited China in 1987 while a student at Leeds University in the United Kingdom to study modern Chinese at the University of Beijing. Since that time, he's been to China frequently, and he's most impressed by what he terms the "individuality of life" in China today.
"There are many obvious changes—modern buildings, modern cars, book shops, malls and so on—but to me, China today is about expressing one's individuality in a way that one could never express it before," he says.
Life in the Old China had very little, if anything at all, to do with individual capabilities, skills and choices. Today, self-expression is key, and that translates into the way people dress, eat, play sports, travel and entertain themselves.
"The change is tremendous because it allows for the creation and growth of all manner of very profitable opportunities," Horrocks says. "New ventures that provide products and services for a new lifestyle in which people are looking to express their individuality. I believe that change is only going to continue."
Matthews focuses its China investment strategy on companies that can offer consumers a more self-expressive and explorative lifestyle. Whether it's through retail or branded goods, media or health care, there are myriad ways one can tap into this dynamic, Horrocks says.
"You have to think about how the family is changing and examine that dynamic," he says. "As people are able to express themselves more freely, they may want to spend more money on leisure, for example, and less on caring for the elderly. As families in China become more like nuclear families in the West, there are wide ranging implications for self-expression."
But focusing on the importance of self-expression in China as it mirrors the social and economic changes that continue to happen there also means looking beyond the obvious.
"Take an area like wealth management: As people have more money, they want to invest it into different kinds of financial products," Horrocks says. "And as people get wealthier, they begin to care about other things, like the environment; so, in thinking about how consumer preferences are changing in China, investors who are looking ahead should also be looking at companies that make a more efficient use of energy resources, materials and so on."
Bearing in mind the general theme of changing consumer habits and tastes, Matthews also places a great deal of emphasis upon assessing individual companies in a nuts and bolts manner. The broader dynamic is very important to the firm's overall China investment theme, Horrocks says, but understanding each and every business is key, particularly with respect to how it fares vis-à-vis shareholders.
"Much of what is done in China is done in Hong Kong, which has a very well-established stock market, strong auditing and a proper anti-corruption bureau," Horrocks says. "Hong Kong is a very well-developed and familiar kind of environment for us."
The company also looks to dividend-paying companies in China—not an obvious strategy for many, Horrocks says, but definitely one that Matthews believes will pay off in the long term.
"Dividend payments are a very good check on corporate governance. If a company is paying a dividend to its shareholders, that means it's using cash in a useful way and is probably a well-managed business," he says. "People don't immediately think of China as a place where a dividend-based investment strategy can work, but we have been implementing dividend investing throughout Asia, and we are pretty certain it's a worthwhile strategy for China, too."
Matthews launched its dedicated China Dividend Fund (MCDFX) in 2009.
Brian Gendreau, market strategist, Cetera Financial Group: Valuations and Wealth Creation Should Invite Investment
Few would argue that China's popularity has resulted in Chinese stocks becoming overvalued. However, forecasts for lower growth have reduced Chinese stock prices quite a bit, says Brian Gendreau, a market strategist at Cetera Financial Group. That means buying China based on valuations alone is as good a reason as any other to take advantage of the opportunities there.
"The market went through a process of pricing down China because of the economic forecast, but what's important to note is that the relationship between GDP growth and equity markets is almost always non-existent," Gendreau says. "China may only be slated for 7% to 8% growth this quarter, but most countries would still die for that. My guess is that people who buy China now will be very happy three to five years down the road."
Consider that the price-to-book ratio for the Chinese stock market is about 1.7 and its trailing price-to-equity ratio is about 10.8, compared to 12.8 for the United States and 12 for emerging markets on average. Looking ahead, that number is forecast at 9.2, which is even better, Gendreau says, so it's tough to argue that China is overvalued at this point.
Given the metrics, those who buy China now will reap returns in the future if they believe, as Gendreau does, that the forecasts for economic slowdown are only temporary. China is still the engine for world growth, but more importantly, domestic demand is the engine for Chinese growth, and that will continue to increase.
"China has turned away from manufacturing and is focusing on domestic demand," Gendreau says. "China has exceeded the [United States] in terms of wealth, and that's a huge factor supporting domestic growth in a country where demand for everything from BMWs to Big Macs keeps increasing."
Growth may be slowing now, but the way China is developing means opportunities will always arise in tandem with expanding consumer demand. For investors getting in now, the prospects look quite good.