Philippines: off the sick bed

The Philippines has made rapid progress in recent years. Andrew Van Sickle reveals the best way to play the former “sick man of Asia”.

16-2-11-Aquino-634
President Aquino has made rapid progress

When Benigno Aquino became president of the Philippines in 2011, the country was in poor shape, says William Pesek in Barron's. The previous two leaders had been arrested for corruption. "Powerful vested interests", tax evasion, and the legacy of past mismanagement notably overspending were holding the economy back.But the former "sick man of Asia" has made rapid progress.

A clampdown on corruption helped the Philippines jump from 134th to 85th in Transparency International's Corruption Perceptions index (which measures how crooked countries' public sectors are deemed to be). Spending and debt have fallen too, with the budget deficit at 1% of GDP now and the debt pile at 40% of GDP, down from 68% in 2003.

The well-educated, English-speaking population has carved out a niche in business process outsourcing, taking care of back-office administration for foreign companies, as well as in high-tech manufacturing (principally electronics). Remittances from overseas account for around 8% of GDP and have underpinned consumption. This has all spurred investment, now at a 15-year high of 22% of GDP, according to brokers CLSA. But there is still "plenty of room for improvement" in Thailand and Indonesia it is 24% and 33% respectively.

Most of the upswing so far has come from the private sector, but the government is set to award at least 60% of the $7.6bn of 2016's planned public works by March, giving infrastructure a much-needed boost, says Pesek. "Dodgy infrastructure and high power costs" are key deterrents for foreign investors. Throw in the fast-growing workforce, says Matt Bohlsen on SeekingAlpha.com, and the outlook for consumption is encouraging especially because household debt is a mere 6% of GDP.

The Philippines also appears to be one of the safer markets in the region for now: it is a net oil importer and because consumption comprises the lion's share of GDP, it's less exposed to China-related regional and global ructions than most of its regional counterparts. A current-account surplus also shields against destabilising falls in the Philippine currency, the peso. The economy should grow by almost 7% in 2016, says CLSA, and is "the best macroeconomic story in Asia". Investors can gain exposure via an exchange-traded fund, the db x-trackers MSCI Philippines (LSE: XPHG).

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020