Duterte in Japan – A $1 Trillion Opportunity That the U.S. Lost In Translation

Keith Fitz-Gerald Nov 02, 2016

[Tokyo] – I was in Tokyo last week when Philippine President Rodrigo Duterte came to town for a pow-wow with Japanese Prime Minister Shinzō Abe, and I couldn’t believe what I heard.

As always, the mainstream media focused on who said what and, in doing so, missed out on what was really “said.”

Today I’d like to tell you what they’re not picking up on, and how to profit.

Profit from What the Press Doesn’t Report

The mainstream media is exceptionally good at reporting what happens during state visits like this one, but very rarely do they go beyond who said what. Like so many things in Asia, journalists – and western journalists, in particular – fail to grasp the subtleties. Not surprisingly, that’s where the real story usually is.

Here, more than any other place in the world, you’ve got to know how to read between the lines to get at the real meaning of anything that’s said. I can personally vouch for how hard that is, having spent more than 25 years in Japan as a businessman, a husband and a father.

There are both literal and figurative translations to contend with. All too often, inexperienced commentators – and even some experienced ones – will provide one without the other.

Context is everything in this part of the world.

The Japanese language, you see, comes from context-driven lexical borrowing while Western romance languages stem from the logically oriented Proto-Indo-European language family – which is a fancy way of saying English is very blunt while Japanese relies heavily on symbolism and context.

That’s not exactly something you can explain in a 10-second sound bite, so most news programs don’t bother and cut right to who said what when the real meaning is in the symbolism associated with those words.

Take President Duterte’s comments, for example. He called Americans “stupid” during a meeting with Filipinos who live in Tokyo prior to sitting down with Prime Minister Abe. I have no doubt he meant every word he said.

Then he followed up with even more fiery commentary, saying that the Philippines does not need American bombers nor airports to host them while speaking to an audience of Japanese businessmen. Chances are, he meant that, too.

Prime Minister Abe’s comments were far more nuanced, especially when it came to Japanese-Philippine relations. He noted repeatedly that the two nations will work together, observing that the two leaders have “confirmed the importance of a peaceful resolution” to China’s regional maritime interests, which are a source of growing frustration in the region. Then he told reporters that he “welcomes” Duterte’s recent visit to China because it will improve bilateral relations between Beijing and Manila.

Did you catch that?

Duterte is clearly signaling a changing of the guard and makes no bones about it. Abe is playing peacemaker, using language designed to assure Japanese, Chinese, and Filipinos alike that long-standing animosities dating back to WWII are being put to rest even as the U.S. is being put out to pasture.

At the same time, the specificity of the words he’s chosen – peaceful resolution and welcome – telegraph a willingness to play along to a Chinese government that’s watching this visit very, very carefully. Abe knows that his remarks will be boomeranged from Japanese into English and from English into Chinese and he understands precisely which words will come out on the other side.

Effectively what he’s done is reinforce his implied willingness to play along without any of the three parties – the Philippines, China, or Japan losing “face.” That’s important in all three cultures because it’s a way to make progress yet not strain already tense relationships that is almost uniquely a United States foreign policy tool.

There’s a lot at stake.

Japan and China are both angling for a chunk of the estimated $1 trillion in mineral resources that the Philippines has on offer and which Duterte wants to develop. Most of that is concentrated on the island of Mindanao which, not coincidentally, is also known as the “Fruit Basket of the Philippines” for its rich biodiversity.

Right now Japan has the inside track, having pumped nearly $10 million into the island’s infrastructure through the Japan International Cooperation Agency, or JICA for short. But China’s in the hunt, having built a power plant and working to connect various island wide railway systems.

Japan reportedly has ¥5 billion on the table, while China has upped the ante $6 billion as an opener. And the U.S. has – ta da – zilch on offer. Instead, our country is acting as if international cooperation is some sort of manifest destiny – a posture that is not lost on the Japanese even though they have been our allies for decades, incidentally.

I see two ways to play this right off the bat.

Like the diplomats, I think you come at this from both sides, initially nibbling in but then making progressively larger investments as money mirrors diplomacy.

Grab Your Share of $1 trillion

Sumitomo Mitsui Construction Co. Ltd (1821:TYO) is one of the largest Japanese construction firms and an active builder in the Philippines.

TW chart

The company has grown revenues very impressively over the last few years while maintaining healthy margins – and additional access to Mindanao could be quite a catalyst.

I can’t help but notice Sumitomo Mitsui has increased cash reserves by more than 29% so far in 2016 – which would be a highly strategic move if the company is gearing up for a binge of strategic land acquisitions or conceivably a fresh expansion as I believe is the case here based on Duterte’s visit.

China State Construction Engineering (601668) is traded on the Shanghai Stock Exchange and may be the largest construction company in the world. It’s certainly one of the most innovative.

Established in 1985, it’s the only construction enterprise in China certified for 3 top grade Qualifications of general contracting for building works, municipal public works and highway works.

The company’s won dozens of scientific progress and engineering prices and holds hundreds of patents on everything from construction methods to actual inventions.

Like Sumitomo Mitsui, China State Construction has a history of highly successful foreign endeavors, including in America where the company was awarded the 2015 Construction Achievement Project of the Year Award for its MTA Fulton Center project in New York City.

Obviously, you’ll have to make a call to your broker if you want to purchase shares, but don’t let that stop you if you want to play along. Buying foreign listed securities isn’t the big deal that it used to be and many of the top brokers have access to them.

As an alternative, consider buying the First Trust ISE Global Engineering and Construction Index Fund (FLM).  You’ll pick up more of a global flavor but that may be okay considering the implications associated with our discussion today.

Speaking of which, we’ve only just begun to scratch the surface today. I have no doubt the budding relationship between the Philippines, China, and Japan will blossom.

Expect more as it develops – pun absolutely intended.

Until next time,


13 Responses to Duterte in Japan – A $1 Trillion Opportunity That the U.S. Lost In Translation

  1. Daisy says:

    This information, abt China, Japan and Phil helps a lot in choosing international stocks. Thank you.

    • Keith says:

      Thank you for the kind words, Daisy. I’m glad it’s helpful.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Jimmy Metahysa says:

    An amazing article. As a confirmation of this country’s potential, last year I traded on the Philippine’s Stock Exchange (PSE) through a local broker for an associate of mine. I made 31% in seven months.

    • Keith says:

      Way to go Jimmy and thanks for sharing. That’s fabulous!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

      • Richard Lacey says:

        Just saw you on Varney. I’m enjoying this new HOPE. Many things I can’t stomach about Trump…but the alternative is Horrific! I’ve worked in the Pacific Rim as a beef marketing specialist for ConAgra. I’m now looking for a way to grow my retirement resources. Thanks for your counsel and suggestions. Rick

  3. William Stel says:

    Keith , It is indeed a pleasure to hear such a personal extreme high quality report as you can’t count on our biased media to give a great report you can believe, on par with some of our other high end services as you know.

    • Keith says:

      Thanks very much, William. It was a fun article to write and I can’t wait to see how all this unfolds. The amount of activity I see on that side of the Pacific is almost totally unreported on this side which means, of course, that there’s plenty of opportunity.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  4. Sam says:

    I understand Keith’s point, but if face saving is important which I know is in Asian culture, the rhetoric from Duterte, is certainly anything but that when it comes to how he has spoken about USA. More power to him, the last chapter on this issue is yet to be written.

    • Keith says:

      Hello Sam. I agree with you on both counts and that brings up a very interesting aside.

      The reason Duterte can afford to be blunt is that he knows he can. He quite literally has everything to gain and America is the one to lose.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  5. R. S. Santiago says:

    Thank you for your Lost in Translation explanation. Mr. Duterte at times speaks in the dialect of the region where he is making his speech. AFP reporter, probably not a local , needs a translator who converts Duterte’ss dialect to Tagalog (Philippines’ National Language) where the cursing, directed to no one, becomes directed to a particular person, when finally translated into English. You may sign me in as “a California immigrant”

    • Keith says:

      Hello R.S. and welcome!

      You raise a very valid point. Not only are translations between languages critical, but often within dialects, too. There are 8 major dialects and up to 175 languages in the Philippines alone. Factor in China and Japan and the number jumps well into the thousands. In addition, many have tonal elements that western ears literally cannot hear according to language experts.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  6. Sharlene Nelson says:

    Dear Keith,

    I live in Federal Way, Washington (pop. circa 80,000). In the last month I’ve seen two “urgent care” offices nearing completion near the downtown core. They are less than 2 miles apart, and there are already two or three urgent care offices close to same vicinity. If this is a new trend, would this present an investment opportunity?

    Thank you for all your balanced advice! It is much more comforting than the scare headlines.

    • Keith says:

      Hello Sharlene and thanks for the kind words. You’re welcome!

      It’s unfortunate that so much of our world is dominated by fear and pessimism at the moment because it’s optimism that wins the day every time.

      Speaking of which, you are right. There’s an incredible opportunity in urgent medicine only the problem is one of scaleability – meaning investing at the local level can be very profitable. However, I’ve yet to see a company worth investing in on a national level because ObamaCare prevents that from happening.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

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