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 has the 12th largest population and the 43rd 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 economies, projecting that it will become the 14th largest economy in the world by 2050 - an economic miracle by many measures.
Growing Emerging Market Economy
The Philippines' newly industrialized economy has transitioned from an agricultural focus to a service-based economy over the past several years. As of 2011, approximately 52% of the economy was based in the service sector, 33% was based in the agricultural sector, and 15% was based in the industrial/manufacturing sector, according to the CIA World Factbook.
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 also houses a large mineral and geothermal resource, producing more geothermal energy than all other countries except the United States.
Ways to Invest in the Philippines
Exchange-traded funds (ETFs) represent the easiest way to invest in the Philippines since they can be purchased on U.S. stock exchanges and offer instant diversification. But investors can also consider purchasing American Depository Receipts (ADRs) or purchasing stock directly on the Philippine Stock Exchange (PSE) using a foreign brokerage account.
The most popular Philippines ETF is the MSCI Philippines Investable Market Index Fund (EPHE), which offers exposure to over 40 different companies. As of November 2012, the fund had a net asset value of $136.8 million with an expense ratio of 0.59%. And notably, the fund is largely weighted towards financials (38%) and industrials (25%).
Some of the largest holdings in the ETF Include
- SM Investments Corp. (SVTMY)
- Ayala Land Inc. (AYALY)
- Philippine Long Distance Telephone (PHI)
- SM Prime Holdings Inc.
- Aboitiz Equity Ventures Inc.
Benefits & Risks of Investing in the Philippines
The Philippines offers international investors exposure to one of the Next Eleven economies, but there are many risks that should be carefully considered, ranging from geopolitical risk to reliance on foreign economies to support its growth. Benefits of investing in the Philippines include:
- Emerging Market Economy. The Philippines is considered an emerging market economy and one of Goldman Sachs Next Eleven economies.
- Leadership in Outsourcing. The Philippines is a leader in business process outsourcing (BPO), which is one of the fastest growing industries in the world.
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.
Key Takeaway Points
- The Philippines is a well-known investment destination and a Goldman Sachs' Next Eleven economy position to grow significantly over the coming years.
- The Philippines economy is primarily known for its business process outsourcing (BPO) service sector and high tech export sector.
- The easiest way to invest in the Philippines is by purchasing the MSCI Philippines Investable Market Index Fund (EPHE).