The market is always right (4)

In my efforts to make my 10 year old understand a little about exchange rates and stock markets, I let him choose in which country to invest his 100 peso in. As a 10 year old picks his own national team in a bet for the world champion (which statistically only makes sense if you are Brazilian, German or Italian), he picked the Philippines to invest his 100 Peso in on July 1, 2016.

Understand me right I know it makes investing look like gambling, which it isn't. It does allow me to explain why the exchange rate goes down, depending on the trust in the Government to run the country well, and how higher interest rates at first negatively influence the stock market. Interesting discussions at the breakfast and dinner table and mostly joined by my sixteen year old son and my wife as well.

Some disappointment this week as the Philippines performed worst of the 5 countries we picked last year. Mayor Duterte hasn't been able to make the markets believe that he is able to keep the Philippines healthy, leading to a lower Peso and higher interest rate. Once the sick man of Asia, the Philippines was the new child on the block and everyone wanted a piece of it. This enthusiasm has changed a bit and the preference went to other markets like Indonesia, which in Peso terms gave a return of 24%.

"Luckily I still have my 100 peso", he said, and in that he was absolutely right. "So nothing lost, can I just try again until the summer of 2018?", he asked. Of course I agreed and I'm looking forward to the conversations in the year to come. I just hope that unlike me, who kept on putting my money on the Dutch team, my son will understand that there is a difference between choosing with your heart and doing what is financially wise.

For local investors I understand the dilemma can be like my son's, but I hope you took my advise to diversify and include dollar investments into your portfolio. My advise now would still be to maintain a diversified portfolio, maybe slightly increase your holdings in European shares and in other Asean markets. Because maybe your heart wants the Philippines to be number 1, be smart with your money and bet Brasil, Germany or Italy as the new world champion.