Company Touch Tracker
This quarter our team engaged with 468 companies across the world, putting our trailing 12-month company touches at 1,808.
In Q4, team members traveled domestically to Massachusetts, Florida, New York, Texas, Georgia, Illinois, California, Missouri, and Virginia. Internationally, team members traveled to Brazil, Canada, China, Indonesia, Philippines, India, Sweden, Japan, France, Belgium, and the United Kingdom and interacted with companies in 20 other countries. We track these interactions and share them on our Company Touch Tracker1.
Philippines Recap
Dane Nielson, Portfolio Manager, and Nick Luong, Research Analyst, traveled to the Philippines and Indonesia this quarter. Here are some of their thoughts after returning from Southeast Asia:
The Philippines is a consumption-based economy. You could argue that relative to the rest of Southeast Asia, the Philippines had a jump start when business process outsourcing companies (BPOs) were making large investments 10 to 15 years ago. Growth multiples were expanding, new opportunities were bringing additional outsourcing business to the country, and it felt like the population could see a meaningful step towards greater economic prosperity. However, the political environment and weak corporate governance have continued to heavily influence the economy. Corruption scandals in various forms have haunted the region as well.
Specifically, here are three reasons why current company valuations are depressed:
- Risk of AI: BPOs account for nearly 10 percent of the country’s GDP (Gross Domestic Product) and the threats from AI (Artificial Intelligence) are real. While BPOs are still experiencing net growth of five percent (12 percent new BPO jobs created offset by seven percent of BPO jobs eliminated), international investors anticipate that the threat of AI will continue to pressure the industry. What surprised us during our company visits was how many locals were still optimistic about the future of the business model. One company argued that the industry is aggressively “upskilling” by bringing AI into the workplace and expanding the higher value-add services. We remain skeptical of this view.
- Government Infrastructure Project Scandal: Infrastructure projects are a high priority for the government as it hopes the investment could lead to a stronger industrial base for the economy. However, the country has faced a large corruption scandal where elected officials have been accused of taking up to 25 percent in kickbacks for government infrastructure projects in their rural areas. For context, the recent scandal in Malaysia involving 1MDB lost $4.5 billion and the scandal in the Philippines is estimated to have up to a $10 billion impact, impacting GDP by 2% at least, and estimates may continue to rise2. Besides the impact to GDP, the scandal has put a spotlight on the politicians, who are now very reluctant to greenlight investments, which has eroded business confidence and effectively frozen additional investment while the investigations play out. The silver lining from the scandal may be that the proportion of government spending that is allocated towards “handouts” may end up being higher, in an effort to win over hearts and minds of the people. If this plays out, consumption rates for the average consumer could increase as their disposable income is subsidized by government payouts.
- New Ban by Government on Philippine Offshore Gaming Operators (POGOs): President Marcos Jr. recently declared all offshore gaming operators as illegal. These organizations are commonly believed to be Chinese gambling rings and the influx of capital led to a bubble in residential real estate. The country is still digesting the fallout as the law was passed this quarter.
Current valuations and historically strong growth rates were key drivers of our visit to the Philippines. We left the country feeling underwhelmed with our visit. Innovation is low given the poor investment environment for small and medium-sized businesses. Most young people hope to work for a BPO or work abroad in construction, hospitality, or caregiving positions in the UAE, Hong Kong, or the US. The multi-generational family conglomerates continue to dominate the business landscape and are typically characterized by their lack of focus or discipline in issues of corporate governance, sustainable competitive advantages, or growth strategies. It could be unfair to categorize all conglomerate businesses with this description, but it remains fairly difficult to identify a unique company that meets our investment criteria that does not also have the risks associated with the handful of dominant family-owned businesses.
We believe it might take some time before the economy recovers. The market weakness driven by the government changes and shifting spending priorities is likely to persist. Both the corporations and the consumers have cut back on spending amid the uncertainty. We believe this impacts the middle-income population the most as those in the higher-income households have not shown a meaningful change in behavior and those in lower-income households may see improvement from increasing government support.
While we didn’t leave the country with a list of new ideas, we still gained insights into our current holdings and gained a better understanding of the challenges to economic growth across the area. We’re optimistic that a high-quality company can still deliver performance in spite of short-term macro headwinds.
[1] Grandeur Peak Global Advisors – About Us – Global Footprint, https://grandeurpeakglobal.com/global-footprint/
[2] How a scandal is hitting the Philippines’ star economy. https://www.taipeitimes.com/News/editorials/archives/2026/01/13/2003850497