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Right place, right time

PHILEQUITY CORNER
By Valentino Sy (The Philippine Star)
Updated August 09, 2010

Among emerging markets the Philippines has often been overlooked because of the small size of our market in terms of liquidity and market capitalization. Once a darling of the investment community in the early 1990s when the Philippines was known as one of the emerging Asian Tigers, the Philippine market has been a laggard when compared to its Asian and Latin American counterparts.

In recent years, however, a lot of factors have changed. In fact, this year the PSE index is at a new high for the year at 3,516.28, up 15 percent year-to-date.   Our Philequity Fund is also at a new high at P16.11 per share, up 23 percent year-to-date.

Among the reasons to invest in the Philippines now include:

• Growth in developed markets are slowing whereas Asian growth, in particular the ASEAN region (+6.5-percent GDP growth in 2010 ) and the Philippines (+6- percent GDP growth in 2010) are showing robust growth.

• There is a marked shift towards investment in emerging markets and in Asia as opposed to developed markets such as US, Europe and Japan.

• The technical picture is much better in the ASEAN markets which are making higher highs as opposed to developed markets which are still in the process of consolidation.

• Strong domestic corporate earnings results which has been supportive of higher equity prices.

• Resilient and well-capitalized Philippine banking sector.

• Mild inflation which is expected to average four percent in 2010.

• Steady flow of OFW remittances which has kept the domestic economy growing despite the recent global crisis.

• An appreciating peso on the back of surpluses in the current account and balance of payments.

• A more transparent new government with a clean governance platform that will likely reinvigorate business and investments.

With the right macro picture, right political environment, right growth area which is the ASEAN and our proximity to China, we believe it is now the right time for the Philippine market to get noticed once again.

Back in the Radar

The Philippines is definitely back in the radar of foreign funds. In fact, Goldman Sachs included the Philippines in its “Next Eleven” (or N-11) list of countries – identified as having promising outlooks for investment and future growth.

The N-11 (which includes Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines and South Korea) is a follow-up to their 2003 paper on the BRIC economies (composed of Brazil, Russia, India and China). Goldman Sachs used macroeconomic stability, political maturity, openness of trade and investment policies, and the quality of education as criteria for selection.

Chinese growth pulling the ASEAN and the Philippines

Economic and trade relations between China and the ASEAN have strengthened significantly in the past years. China is currently ASEAN’s second largest trading partner with total trade between the two reaching around $200 billion in 2009.

The full establishment of China-ASEAN Free Trade Agreement (CAFTA) on January 1st 2010 will further promote economic and trade ties. Touted as the biggest Free Trade Area, CAFTA boasts of 1.7 billion consumers with a combined gross domestic product of $2 trillion and total trade of $1.3 trillion.

With China now back on its growth path after engineering a soft-landing, the ASEAN economies will further be benefited (see Our Time is Now, July 26, 2010).