Investors are “kicking the tyres” of the Philippine economy, says Roberto Herrera-Lim of Eurasia Group. No wonder. Traditionally an underperformer, it seems to be getting its act together and is developing into an Asian “star”, as Standard Chartered puts it.
The economy grew at an annual rate of 6.1% in the first half. It is one of the few countries whose 2013 growth forecast for next year has been raised by the Asian Development Bank – to 5.5%. Stocks have hit a record high.
So what’s gone right? Once dependent on remittances from Philippine workers overseas and agricultural production, the economy has increasingly drawn upon its English-speaking workforce to carve out a presence in global services.
The Philippines eclipsed India last year as the world’s top provider of voice-based outsourcing services, such as customer service call centres, says Floyd Whaley in The New York Times. The outsourcing industry is growing by 20% a year.
The country is also gradually developing its manufacturing sector. Steady labour costs and a government public-private partnership scheme to improve infrastructure, hitherto a weak spot, have encouraged makers of everything from chemicals to boats to expand, says Deutsche Bank.
Improvements in the political environment, notably a clampdown on corruption and reform of the procurement processes at major agencies, have helped foster confidence and investment. “Optimism about the quality of governance is the highest in two decades,” says Herrera-Lim.
Meanwhile, remittances from abroad have helped keep the current account in the black. Tackling tax evasion should improve revenue collection, ensuring that the fiscal deficit shrinks further. The country’s young and expanding workforce also bodes well.
For now, it helps that the economy is one of the few in the region not dependent on exports. So it looks relatively resilient to Western turbulence, although the stockmarket, like all emerging equities, will not be able to shrug off global sentiment. Alongside a price-to-earnings ratio of 18, above the ten-year average, that suggests the market may struggle in the near term.
But given the positive long-term outlook, the US-listed ETF tracking the MSCI Philippines Investable Market index (EPHE) may be worth considering the next time the market slides.