How RCM beat the herd
1 March, 2008The LBO hits Islamic finance – but how?
1 March, 2008Asiamoney, March 2008
It is the moment all foreigners face in Vietnam: the flicker of indecision while crossing a road as four hundred motorbikes bear down on them with varying pace and direction. The head says: keep walking, they’ll anticipate my movements. The heart says: I’m going to die. And I’m going to die with tread marks up my nose.
But perhaps – and we recognise this is a big ask – in that moment of pending doom, we should think of it not as a threat to mortal existence but as an economic indicator.
Granted, the Asiamoney Likelihood of Being Smacked in the Teeth by a Moped Index (ALBSTMI) will take a while before replacing GDP as the benchmark for economic fortitude. But there’s something in it. Your correspondent, visiting Vietnam after an absence, found Ho Chi Minh City was just as heinous a place for a pedestrian to cross a road as ever, but that Hanoi, from a more sedate starting point, had become its near equal. Perhaps this reflects the growing commercial presence of Hanoi as opposed to just being a centre of government; or the increasing wealth and disposable income that comes with Vietnam’s 8.5% economic growth, and Hanoi’s of 11.5%.
After all, it’s the economic indicators you can see that really matter. Residents of Bangkok argued that the way they could tell economic progress was returning to Thailand after the Asian financial crisis was not because of any questionable government statistic but because the traffic jams were back on Sukhumvit Road.
And informal indicators have been whackier still. Asiamoney can recall being told earlier this decade that a suitable indicator of M&A activity in South Korea was consumption (and, indeed, dispersion) of tear gas. One doesn’t have to go back too far in Korean corporate history to recall the controversial bank merger in which employees barricaded one of the chief executives in his office for three days without food and water, periodically threatening to set themselves on fire. Riot police were often called into action around this time. Tear gas sales up? There must be mergers afoot.
One useful quirky indicator that is likely to stick was devised by CommSec, part of the Commonwealth Bank of Australia, in the spirit of the Big Mac Index. The BMI – or Burgernomics, if you must – was devised by The Economist to illustrate purchasing power parity, or the theory that a dollar should buy the same amount in all countries and that consequently exchange rates between currencies should move to a point where everything costs the same everywhere. The Economist picked the Big Mac, produced in over 100 countries, as a suitable vehicle for comparison; if a Big Mac costs more in, say, Malaysia than America, then there’s an imbalance in dollar-ringgit exchange rates.
CommSec’s innovation was to bring the index into the 21st century. A Big Mac index is flawed: the burger is manufactured all over the place, so prices are distorted by labour laws, transport and trade barriers. Instead, it settled on the iPod: almost as universal, but almost exclusively manufactured in one place, China, which takes everything other than freight costs out of the picture. A while ago, iPods cost twice as much in Brazil as Canada, for example, with the dollar (US and Hong Kong) at a similarly low level. That appears to demonstrate that the dollar is undervalued.
Perhaps we can go further and work out the likelihood of being flattened by a Hanoi motorbike whose rider is wearing an iPod at the time of impact. That should bring consumer spending, GDP growth, purchasing power parity and the Vietnamese dong cross-rate into a single handy indicator. You can’t get more practical than that.
