Nov
10
2015

Investing in the Philippines – A PhilPay feature

Over the last few years the Philippines has been consistently listed as one of the top growing economies in Asia. It is internationally flagged as being a place to invest in at many levels.  The most rapidly growing business over the last few years has been with call centers alongside the popularity of the Business Process Outsourcing (BPO) industry, between them now employing over 1 million Filipinos spread over 20 centers around the country. The fact that large international corporations including JP Morgan Chase, HSBC, Hewlett-Packard and Procter & Gamble have recently expanded operations in the country is a clear indicator that things are on the rise and the economy is booming.  Filipinos speak English, and the country supplies economical-waged workers that appeal to large companies growing their operations overseas. These factors alone make the Philippines an attractive area for investment, so experts say.

Nicolas Jaquier, emerging market economist at Standard Life Investments, noted that the Philippines beat China’s GDP growth in the first quarter of 2013, and its 7.2 percent GDP growth last year was second only to China’s 7.7% growth rate. China in the meantime has subsided with internal economic changes that have slowed up its development, while the Philippines keeps growing handsomely by comparison.

“Overall, what sets [the Philippines] apart is an improved political environment. President Benigno S. Aquino III’s reform agenda has paid dividends in the last couple years,” Jaquier says. “They imposed new taxes, such as sin taxes on tobacco and alcohol, raising money that can be redeployed into infrastructure.” New infrastructure attracts global businesses and bodes well for the Philippines’ tourism industry, which is underdeveloped, Jaquier says.

Foreigners have invested successfully in the Philippines in agriculture, and export orientated crops are favoured in most cases, though local markets have also been mastered. The Pili nut is a recent favourite and is now receiving increased government interest and support.

Tourism is another booming industry also being invested in by foreigners, and there are a thousand destinations less commercialized by travellers that have a bright future on many of the islands throughout this tropical archipelago.

 

Countless people are lured in by the potential riches that might be made in real estate purchases, but it is advisable to stick with the larger, more experienced and well-known companies who are able to control their prices and some make sure that re-sales are controlled by a rising price. This so-called ‘condomania’ finds so many buildings going up everywhere in the popular Manila centers like Makati, Bonifacio Global City (the Fort), and Ortigas and the unlimited choices most likely means that many developments could see their prices decrease over time.

The country has also been insulated from some of the effects of international market downturns thanks to the number of remittances it receives from citizens living abroad and particularly from the 10 million or so Overseas Filipino Workers (OFWs) who sent in around US$25 billion over the last twelve months which is a massive boost to the local economy and “made it more resilient,” so Jaquier says.

Experienced investors looking to diversify their liquid portfolios often favor investing in a basket of stocks from a region as one way to gain exposure. Sean Lynch, a global strategist for Wells Fargo Private Bank, says investors should focus on pooled investment vehicles, such as actively managed mutual funds or exchange-traded funds that are available through various international and local institutions.

“Our biggest concern is how these markets handle the possibility of rising interest rates in the US, a stronger dollar and the Chinese slowdown,” Lynch says. However, he adds that​​ valuations look attractive for emerging markets based on historical averages. Lynch says he is concerned that the valuation of stocks in the Philippines is “a little stretched.” But he adds that the economy looks strong and the stock market has outperformed other emerging markets this year. “Equities trade at a very high valuation, even on a historical basis, at a [price-to-earnings] ratio of 20 times this year’s earnings from an equity standpoint. This is a huge premium to emerging markets – over double the valuation,” Lynch says.

The Philippines has the 12th largest population and the 43rd largest economy in the world, making it a popular destination for international investors. In fact, Goldman Sachs named it as one of its ‘Next Eleven’ economies, projecting that it will become the 14th largest economy in the world by 2050 – an economic miracle by many measures.

The Philippines’ newly industrialized economy has transitioned from an agricultural focus to a service-based economy over the past several years. The country also houses large mineral and geothermal natural resource potential, producing more geothermal energy than all other countries but for the US. The range of areas worth considering for investment is extensive throughout these islands and is definitively on the increase.

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