A Guide to Investing in the Philippines
Learn About Exchange-Traded Funds and American Depository Receipts
"I am not embarrassed to tell you that I believe in miracles." - Corazon Aquino, Political Leader and President of the Philippines (1986 - 1992).
The Philippines is considered an emerging market economy. It has the 13th largest population and the 28th 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 (N-11) economies. The Philippines is projected to be the 16th largest economy in the world by 2050—an economic miracle by many measures.
Growth of Philippines' Economy
Over the past several years, the Philippines has transitioned from an agricultural economy to a service-based economy. According to the CIA World Factbook, as of 2017, approximately 60% of the economy was based in the service sector, 10% was based in the agricultural sector, and 30% was based in the industrial sector.
From Toyota to Intel to IBM, the country houses many large multinational corporations looking to lower their costs and take advantage of low domestic wages and a highly educated English-speaking workforce. The country houses a large supply of mineral and geothermal resources, which produced more geothermal energy than almost any other country in the world in 2020, with the exception of the United States and Indonesia. It is also a leader in business process outsourcing (BPO), which is one of the fastest-growing industries in the world.
Ways to Invest in the Philippines
Investing in exchange-traded funds (ETFs) may be the easiest way to invest in the Philippines, since they can be purchased on U.S. stock exchanges. They also offer instant diversification. At the same time, investors can also consider purchasing American depository receipts (ADRs) or purchasing stocks directly on the Philippine Stock Exchange (PSE) with use of a foreign brokerage account.
One of the more popular Philippines ETF is the iShares MSCI Philippines ETF (EPHE), which offers exposure to approximately 40 different companies. Some of the largest holdings in the ETF include:
- SM Prime Holdings Inc. (SMPH)
- Ayala Land Inc. (ALI)
- BDO Unibank Inc. (BDO)
- SM Investments Corp. (SM)
- JG Summit Holdings Inc. (JGS)
- Ayala Corp. (AC)
As of February 2021, the fund had net assets of $146.3 million with an expense ratio of 0.59%. The fund is weighted most heavily among industrials (31.34%), real estate (24.97%), and financials (16.89%).
Risks of Investing in the Philippines
The Philippines offers international investors exposure to one of the N-11 economies, but there are many risks that should be carefully considered, ranging from geopolitical risk to reliance on foreign economies to support its growth. Risks of investing in the Philippines include:
- Reliance on Foreign Trade. The Philippines' economy is heavily dependent on foreign economies in both its export and BPO industries.
- Geopolitical Risks. The Philippines faces a number of geopolitical risks, including weak internal security, political corruption, and potential trouble in the South China Sea.