With globalisation has also come the most significant redistribution of wealth across the planet in the history of humanity. As a result, new investor classes are forming in every locale, and these investors are savvy enough to expand their investment horizons and to consider markets such as the Philippines, which according to the International Monetary Fund (IMF) is the 12th most populous country in the world and has an economy that has produced more than $356bn of nominal gross domestic product.
The Philippines economy, like most others in Asia, is driven by exports. As one economic source reports: “Primary exports include semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, and fruits. Major trading partners include the United States, Japan, China, Singapore, South Korea, the Netherlands, Hong Kong, Germany, Taiwan, and Thailand.”
Economic growth has been dampened due to the COVID-19 pandemic, but the Philippines was better prepared for the spread of this virus and appears prepared to react swiftly when the expected recovery takes place and gains momentum. The iShares MSCI ETF weekly chart for the Philippines, presented below, reflects on an overall basis how returns dipped in 2019, but have slowly recovered to be positioned for whatever the future might bring.
Chart courtesy of IG Group
Share prices for the ETF have bounced back to pre-pandemic levels, a sign that investors believe that the Philippines market is ready to resume a dynamic positive growth. Investing directly in an ETF that focuses on stocks issued by companies in the Philippines is an excellent way to benefit from a potential economic comeback story. More aggressive investors may wish to select specific companies for their investments, but in either case, you will need a broker that has access to the investment targets you want.
There are hundreds of international brokers on the internet, all eager to assist you, but only a subset of these can provide access to an ETF that covers the Philippines stock market. Of these, there may only be a smaller subset that has the capability to buy shares of companies located in this sprawling archipelago in the western Pacific Ocean of more than 7,600 islands. Safety and soundness will be high priorities when selecting your broker. Size also matters, and giants such as IG Group and eToro often appear at the top of lists of the best performers and most trusted global brokers.
Why Buy Stocks in the Philippines?
The Philippines is located near the heart of the East Asian industrial complex, with extensive trading relationships with all surrounding economies. One analyst report stated: “According to the World Bank, the Philippine economy is forecast to grow at 4.7% in 2021, before accelerating to 5.9% in 2022. Businesses and economies are expected to regain their profits after the global recession caused by the pandemic.”
In addition to being positioned for a substantial recovery post-COVID-19, the Philippine peso (‘PHP’) is also a stable currency versus the US dollar, even though this country is an emerging industrial powerhouse, having converted decades ago from primarily an agrarian society. As the chart below depicts, the PHP had strengthened versus the USD during the worst of the pandemic, only to return to its midpoint range for the past three years. Stability versus the US dollar is a benefit when investing overseas.
Chart courtesy of IG Group
How to Buy Stocks in the Philippines
Unless you live in the Philippines and have access to a good local advisory firm, you might find choosing a broker to assist in your investing in that foreign market a daunting task. Safety and security are paramount when choosing any overseas broker. The regulatory body in the Philippines goes by the name when translated as the Securities and Exchange Commission (SEC), having been formed in 1936, two years after the same named entity was formed in the US. The SEC is responsible for regulating the entire securities industry within the Philippines.
With this prerequisite understood, there are five steps to invest in shares in the Philippines:
- Choose a Broker: After you have developed your personal plan of attack (i.e., do you want to buy into an ETF or buy shares in individual companies?), you can begin your search for a capable, safe, and well-respected broker, whether it be an international broker on the internet or a local broker in the Philippines. Your existing broker in your home country may even have a relationship with a Filipino broker. If you are investing for the long term, then it is best to choose an established broker with a good track record over the past five years. After proper due diligence, make your choice.
- Open and Fund an Account: There are international laws related to Know Your Customer, anti-money laundering and anti-terrorism statutes that all brokers are required to comply with. You will be asked for personal identity information, which must be submitted as dictated by the broker. After a review process and everything checks out, your account will be approved. You may then fund it using methods supported by the broker. Choose an amount that corresponds with your plan and level of risk tolerance. Designate the base currency of your account, which is typically USD or EUR.
- Open an Order Ticket and Set Your Position Size: At this stage, it is best to take advantage of the free demo account provided by your broker. During your practice sessions, get acquainted with the broker’s trading platform and with its various options for making purchases and closing positions. Practice buying and selling the shares of your target companies or ETF shares. Determine when the stocks are most active to ensure against low liquidity and widened spreads.
- Set Your Stops and Limits: Do not forget your risk management tools for setting stop-loss orders, take-profit limits, and position-sizing rules. Practice these tasks on the demo system, learning how to set these items when a position is opened or after it has been open for a period of time. Learn how to change these items, and how to close a position before a limit kicks in. Once you are comfortable, you will be ready to put real capital on the line.
- Make Your Purchase and Monitor its Progress: You are now ready for real market conditions. Be prepared for the experience to be a bit different from in demo mode. Buying and selling will be more dependent upon market conditions, and your nerves will also come into play. Lastly, be sure to monitor your positions and adjust as appropriate.
Which Stocks Should You Buy?
Every stock market has a mixture of good, better, best, average, and poor performers. These defining terms, however, depend on the timeframe selected, which can be short if you are a trader or up to five years if you are a long-term investor. Five years may sound like a long stretch, but advisors counsel that this amount of time is required due to business cycles that repeat in the market from time to time. Monitoring your investments will also require fine-tuning. For examples of Filipino companies with good track records, here is a list from just one advisory firm:
- SM Investments Corp. (SM)
- Ayala Corporation (AC)
- SM Prime Holdings (SMPH)
- Ayala Land, Inc. (ALI)
- International Container Terminal Services, Inc. (ICT)
- Jollibee Foods Corporation (JFC)
- JG Summit Holdings Inc. (JGS)
- Alliance Global (AGI)
- BDO Unibank, Inc. (BDO)
- Aboitiz Equity Ventures (AEV)
This advisory firm also explained its selection criteria: “We have chosen these stocks according to profitable potential, high liquidity, stable financial health, sustainability, and longstanding outlook.” These suggestions are only one list, prepared by one firm. It is not meant to be investment advice or an endorsement of these companies. Perform your own due diligence before selecting stocks for further consideration.
Summary
Investment strategies have changed dramatically after the onslaught of globalisation and then the COVID-19 pandemic. Investing in overseas markets is now gaining more credence than ever before to find higher returns and the potential of above-average growth. One market of special interest is the Philippines stock market. Companies in this market are poised for future growth. Whether you invest in an ETF focused on this market or buy individual stock issues from companies’ resident in the Philippines is a personal choice, but each has its advantages. Choose a broker that is safe, secure, and well respected, and let caution be your guide.