It’s more fun investing in Philippines. This is perhaps the most applicable tagline for investors here in the Philippines as they anticipate the most awaited first ever investment-grade credit rating that the country is poised to get from any of the three credit rating agencies this year 2013.
It started last year when the Philippines got its momentum to be one of the investment destinations, both foreign and local. PSEi index reached an all-time high 38 times last year. The three credit rating agencies upgraded the Philippines into one notch below investment grade as bright prospects in the country continue to happen including a registered 7.1% 3rd quarter GDP figure, the second best in Asia after China.
As the year 2013 is just starting to unfold, this momentum is sustained as can be seen in the stock market. As of this writing, the PSEi has reached it’s 11th all time high and we’re just in the first month of the year!
What it Means to Have an Investment-Grade Credit Rating
When the Philippines’ credit reached an investment grade rating by any of the three credit rating agencies, this will mean more foreign direct investments (FDI) pouring into the country. This is turn will move the stocks and bonds market high as investor confidence will strengthened. Most analysts predict PSEi will reach 6,800 to 7,000 this year.
However, the other side of this is that there will be a surge of a so-called ‘hot money’ in the system which can cause extreme volatility for investors. Hot money are foreign investments which can quickly enter and exit in the system based on sudden decisions of foreign investors. The good news is that based on study, the stock market is now controlled mostly by local investors, a by-product of the continuous financial literacy programs by different educators to invest in the Philippine stock market.
In addition, the surge in ‘hot money’ will also mean inflated prices which can lead to asset price bubbles. Demand for Philippine assets will surge and this will drive its prices high. In this regard, investors are being advised to be observant of the valuations of the assets that they are buying. In the stock market, for example, look for companies with strong valuations. Look for companies with long-term projects in their pipeline which can turn into more earnings in the future. Remember that stock prices should be commanded by company earnings and earnings come from more projects.
Interest Rates Are The Lowest
Bangko Sentral ng Pilipinas (BSP ), in its monetary board meeting last October 2012, cut the interest rate to a record low of 3.5%. With a low interest rate, borrowers such as entrepreneurs can borrow from banks with a low interest from their loans. This will mean more business expansions and more businesses will be put up which can then translate to more jobs available for ordinary Filipinos. As more businesses flourish, so does the stocks of these companies. This is the year which is most conducive to avail of loans from banks, be it housing loan, car loan, or any loan, since the interest rate is low. It will also be a good time to renegotiate loans and debts.
Inflation Rate is Low
Aside from interest rate, inflation rate is what the BSP closely monitors. As the regulating body for the economy of the Philippines, BSP tends to balance between interest rate and inflation rate. That is because when interest rates are low, more businessmen can loan more money to fund their business and make it even bigger which can then translate to ‘more money’ in the system that can eventually fuel the prices of commodities.
However, as seen in previous data, the inflation rate was kept at record lows. This will allow people to spend more at its current levels and further fuel the economy as the purchasing power of our money remains strong. Kudos for BSP for having a job well done for this.
USD-PHP Foreign Exchange (FOREX) Rate
With the record near-zero interest rates and the continuous downturn in the US and in Eurozone, fund managers and investors are fleeing their money out of those developed countries and put them into emerging countries like the Philippines. The increase in foreign direct investments helps fasten the appreciation of peso. In fact, the Philippine Peso has been one of the strongest currencies in Asia and has just recently breached its 5th year high against the US Dollar.
A high Philippine Peso can be both beneficial and detrimental at the same time. When Peso appreciates, government debts become cheaper. This can translate to less and less debt for the government. The savings in government debt expenditures can be diverted to pump prime the economy. It can also be channeled to Private and Public Partnerships (PPP) so as to create more infrastructures which is crucial for the growth of the country.
In contrast, a high Philippine Peso is detrimental to dollar earners such as the BPO sector, Overseas Filipino Workers (OFW), and exporters, as their income will be of lesser value. This is where the BSP comes into play again as it tries to manage the flow of investments to help curb the appreciation of Peso.
Confidence in the Present Administration
With President Aquino continue to bring good governance to the Philippines, local and international entrepreneurs and business people are upbeat and looking forward to further invest in our country.
Last year, the peace agreement in Mindanao between the government and the Moro Islamic Liberation Front has finally been sealed. This move will open up opportunities for more businesses to flourish in a region plague by years and years of political instability and war. Investor confidence in the region will shoot up and now poised to become the Philippines’ food basket as there could be a potential agricultural boom.
The recent passage of the sin tax bill will further increase government revenues to create more streams of opportunities for the development and growth of the economy. More projects will be put in the pipeline resulting from more revenue collection.
This year 2013 is also an election year. This will increase consumer spending as more consumption will be seen which will then lead to increase revenues for companies specifically for those involved in media (radio, TV, printing) and consumption.
Overall, the Philippine economy will be well this year. Gone are the days when the Philippines is considered the sick man of Asia. 2013 is not only the year of the Chinese Water Snake but also the year of the Philippine Eagle! Aim high! Soar high! Go Philippines! If you are an investor, this is the best time to invest to ride the growth of the Philippine economy. That is why financial educators keep on teaching financial literacy programs to save and invest so as to benefit from times like this.
Imagine Philippines as the next Singapore! The video below will soon become a reality. Be inspired by it. Credit given to fellow financial educator Marvin Germo for the AVP below. Let’s all help each other towards the progress of Philippines. Happy Investing!