This article was created in partnership with ASEAN Exchanges. The views and opinions expressed are Beansprout’s objective and professional opinions.
What happened?
Investors are increasingly turning their attention back to ASEAN markets, with the Philippine stock market catching notable interest.
The Philippines’ primary stock index, the PSEi or Philippine Stock Exchange Index, has closed above 7,400 for the first time since 2022.
This significant rise positions Philippine stocks firmly in bull market territory, reflecting a gain of over 20% from their low point in June this year.
This upward trajectory has been bolstered by the Philippines Central Bank, or Bangko Sentral ng Pilipinas, implementing interest rate cuts, which have positively influenced investor sentiment.
Additionally, similar moves by the US have further supported this trend. The cuts in US interest rates are anticipated to favour emerging markets by weakening the US Dollar, enhancing the attractiveness of investments like those in the Philippine stock market.
Why invest in the Philippines?
Apart from the recent surge in the stock index, several factors are making the Philippines increasingly attractive to investors seeking opportunities in emerging markets with dynamic economies.
Firstly, the Philippines boasts significant economic growth potential, underpinned by a robust consumer sector. This vital sector benefits from a growing middle class and increasing consumer spending, which fuel economic expansion.
Infrastructure development is another critical driver. The government’s commitment to enhancing transportation, telecommunications, and energy infrastructure has not only improved the quality of life for its citizens but also created favourable conditions for businesses and investors.
Lastly, remittance flows play a crucial role in the Philippine economy. The steady stream of remittances from overseas Filipino workers provides a consistent influx of capital, which supports domestic consumption and contributes to the overall economic stability and growth of the country. These elements combined create a compelling case for investors looking to tap into the vibrant and expanding Philippine market.
#1 – Economic Growth Potential
According to the International Monetary Fund (IMF), the Philippines is projected to sustain robust economic growth, with an expected expansion of 6.0% in 2024 and 6.2% in 2025. This growth is anticipated to be fueled by stronger consumption, increased public and private investment and a rising external demand for Filipino exports.
The country’s economic performance has already shown promising signs, with a strong growth rate of 6.3% recorded in the second quarter of 2024. This figure not only surpassed the 6.2% growth anticipated in a Reuters poll of economists but also exceeded the 5.8% growth observed in the first quarter of the year. These figures underscore the Philippines’ emerging status as a dynamic market within the ASEAN region.
The Philippine government has set ambitious growth targets ranging from 6.0% to 7.0% for this year, aiming to escalate to 6.5% to 7.5% in 2025, and then 6.5% to 8.0% from 2026 to 2028. These targets are part of the strategic rollout of its Philippine Development Plan (PDP), which envisions a comprehensive economic and social transformation. The PDP is designed to rejuvenate job creation and accelerate poverty reduction, guiding the economy towards a high-growth path.
A key component of the PDP involves embracing greater digitalization, enhancing investments in human capital, and fostering public-private partnerships. These initiatives are aimed at promoting technological adaptation, skills development, and research and development. The result is an increasingly dynamic innovation ecosystem that not only boosts efficiency and competitiveness but also propels economic growth. Through these measures, the Philippines is poised to stay on course with its medium- to long-term development goals, ensuring sustainable progress and resilience in its economic structure.
#2 – Strong Consumer Sector
The Philippines is experiencing a significant upswing in its consumer market, driven by a growing middle class and increasing disposable incomes. As more Filipinos rise into the middle-income bracket, there’s a notable increase in consumer spending, which in turn boosts domestic demand for a wide array of goods and services. This shift is not only elevating consumer markets but also stimulating sustained growth across multiple sectors, creating a broad economic ripple effect.
The upward trend in consumer activity in the Philippines is clearly evidenced by the ongoing growth in household consumption. According to the Philippine Statistics Authority, household consumption increased by 4.6% in the second quarter of 2024. Although this marks a slowdown from the peak growth of 10.0% observed in the first quarter of 2022, it still represents a significant and sustained increase.
The burgeoning consumer sector in the Philippines opens up a plethora of opportunities for businesses across various industries, including retail, food services, technology, and e-commerce. These sectors stand to benefit significantly from the increased consumer spending, making them prime areas for investment and development. As such, the vibrant consumer market is a key driver of economic dynamism and an attractive proposition for both local and international investors.
#3 – Infrastructure Development under the “Build Better More” Programme
The Philippine government’s “Build Better More” initiative is a cornerstone policy designed to address and rectify the inadequacies of the country’s existing infrastructure. With a budget ranging from approximately US$160 to US$180 billion over the medium term, this ambitious program is set to transform the nation’s infrastructure landscape dramatically.
This comprehensive initiative covers a broad spectrum of infrastructure developments, including the construction and enhancement of roads, bridges, airports, and public transportation systems. By significantly improving connectivity across the country, “Build Better More” aims to fortify the Philippines’ logistics and trade capabilities, which are crucial for economic vitality and competitiveness. The improved infrastructure is expected to greatly enhance the business environment, making the Philippines an increasingly attractive destination for both domestic and international investors.
From 2022 to 2023, the transportation and construction sectors in the Philippines witnessed notable high growth rates of 13.1% and 8.7% respectively. This surge is largely attributed to the government’s initiation of major transportation infrastructure flagship projects, which have significantly contributed to the groundwork for future development.
As these projects continue to unfold, their impact on the economy is expected to grow even more pronounced. Construction companies, engineering firms, and logistics providers are poised to benefit directly from the increasing demand for infrastructure-related services.
Moreover, the improved infrastructure will have a multiplier effect across various industries. Enhanced transportation networks will reduce logistical costs, making it easier for businesses to expand operations and tap into previously underserved markets. In turn, this will spur greater investment in manufacturing, retail, tourism, and other sectors that rely on efficient transport and connectivity.
The “Build Better More” initiative not only aims to modernise the Philippines’ physical framework but also to lay down the foundational structures that promise a more dynamic and economically stable future.
#4 – Remittance flows
The Philippine economy benefits greatly from the contributions of millions of Overseas Filipino Workers (OFWs), whose remittances are a cornerstone of national economic stability and growth. Over recent years, cash remittance flows to the Philippines have shown consistent growth, reaching a substantial US$33.5 billion in 2023.
These remittances are a critical source of foreign currency, contributing significantly to consumer spending and economic stability. They help to sustain household incomes, underpinning the financial health of numerous families across the nation. Moreover, remittances provide a buffer for the national currency, the Philippine Peso, against economic fluctuations and external shocks, contributing to overall economic resilience.
For investors, the robust and steady flow of remittances underscores the stability of the consumer sector in the Philippines. It signals a dependable level of domestic liquidity and ongoing consumer activity, which are attractive traits for investment. Remittances not only act as an economic stabiliser but also as a catalyst for growth, enhancing the Philippines’ appeal as a promising destination for investment. This dual role reinforces the strategic importance of OFWs’ contributions to the country’s economic fabric and its potential for further development.
#5 Potential beneficiary of Fed rate cuts
The Philippines stands to gain from potential rate cuts by the U.S. Federal Reserve, which could influence global capital flows significantly. Lower interest rates in the U.S. often lead investors to seek higher yields beyond developed markets, turning their attention towards emerging markets such as the Philippines.
This shift can result in increased capital inflows into the Philippine economy, providing additional support for economic growth. Such inflows are not only beneficial in terms of enhancing investment in various sectors but also in supporting currency stability. The influx of foreign investment can bolster the Philippine Peso by increasing demand for local currency needed to make investments, thereby potentially strengthening its value.
What are some risks to look out for?
While there is great investment potential in the Philippines, investors should be mindful of the risks associated when investing in the Philippine market.
Some of these risks include currency risks and a global economic slowdown.
#1 – Currency risks
For foreign investors, exposure to the Peso may present foreign currency risks. Fluctuations in the exchange rate between the Peso and other currencies can impact the returns of investments. Furthermore, currency volatility can impact investor sentiment. If the Peso is perceived as unstable or prone to significant fluctuations, it may deter potential investors who prioritise capital preservation and predictable returns.
Currency instability also impacts the local business environment. A weaker Peso can increase import prices, squeezing profit margins for local companies relying on imports . For investors with stakes in these companies, this could translate to weaker earnings and lower dividends or capital gains.
#2 – Global economic slowdown
A global economic slowdown, particularly in the US and China, could significantly impact the Philippine economy due to reduced demand for exports, affecting industries reliant on these markets. This slowdown might also reduce remittances from the sizable Filipino diaspora in the US, decrease tourist numbers, and lead to fewer investments from these countries, further straining sectors like manufacturing, real estate, and infrastructure.
How can investors gain exposure to the Philippines?
The Philippine economy has demonstrated resilience despite external headwinds and is poised for long-term growth.
Investors seeking exposure to the Philippines may consider brokers that provide access to the Philippine stock exchange, or an exchange-traded fund (ETFs) which tracks the performance of the Philippine Stock Exchange Index (PSEi).
Within ASEAN, some companies have significant exposure to the Philippine market and hold sizable stakes in Filipino companies. For example, Singapore-listed Emperador (SGX: EMI), is the biggest whisky maker in the Philippines and the world’s largest brandy maker with the bulk of its operations in the Philippines. Del Monte Pacific Limited (SGX: D03), an investment holding company with subsidiaries principally engaged in growing, processing and selling packaged fruits and vegetables, is another example of a cross-listed company in the Philippines.
Where can you find more resources on the Philippine stock market?
As always, thorough research is necessary to maximise growth and mitigate risks when investing in the Philippine stock market.
The Philippine Stock Exchange website offers additional resources for you to get the latest company announcements, products, services, and key trading statistics on the Philippine stock market.
Philippines stock market at a glance
The Philippine stock market is one of the most prominent in Southeast Asia, with the total value of companies traded on the Philippine Stock Exchange (PSE), or market capitalisation, reaching approximately ₱17 trillion (US$ 300 billion) in 2023.
Of the 283 companies listed on the PSE as of 2023, the industrial sector accounts for 26% of the total market, with 73 companies in that sector. Other major sectors include the services sector, holding around 23%, as well as the property sector accounting for 17%.
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