Tuesday, 21 August 2012

Emerging Market Highlight - Philippines

Following my earlier posts about the current yearly performance of the BRIC countries, I'm considering starting a short series highlighting the other not as well known emerging markets.  The world is a big place and 4 countries does not an emerging market make.

As a reference, the MSCI Emerging Markets Index (of which the EEM and VWO ETFs are supposed to track) currently follows these countries:

So lets look today at the Philippines and its stock market.


  • The 7th most populated Asia country and 12th most populated country in the world at over 100 million people and a GDP of ~$215 billion USD.  
  • Very favorable working age demographic.  Currently over 61% of the population is 15-64 yrs old, 35% are 0-14 years and a median age of ~22.  In contrast with many other rapidly aging countries like Japan, US, and even China, there is a large and growing population of young workers who can enter the workforce.  Economic indicators lists % of young workers as one of the largest predictors of future economic growth.  For example, China grew to its size off the backs of its large young labor supply who filled its factories.
  • Surprisingly strong stock market performance.  While it may have been lost in the shuffle of the Europe crisis, the Philippines stock market has turned in one of the best stock market gains in 2012.  With the emerging market index only registering a 6.5% gain YTD, the Philippines market has returned over 18%, soundly beating the rest of the emerging markets.

  • Unlike the BRIC countries, Philippines is still only at the beginning of its agricultural to industry shift.  Historically this once in a generation shift tends to lead the way for modernization of the economy and a subsequent boom.
  • Growing GDP.  In the first quarter of 2012, Philippines GDP grew at a 6.4 annual growth against the general target of 5-6% growth target vs a 2011 GDP of 3.9%.  
  • Growing exports.  Exports grew 7.7% to $26.75 billion in the first half of 2012 vs same period last year.   

  • Low inflation.  Unlike many other emerging countries such as India and China and Brazil which are suffering from high inflation, Philippine inflation has stayed in the 3% range, exceptionally low for emerging and growing economies.


  • This is not the first time Philippines has looked good.  Following WWII, Philippines was one of the wealthiest Asian countries and was poised to lead the region.  Unfortunately the next point happened...
  • Poor government policy.  Economic stewardship by the Philippines government has not been favorable, especially under the dictatorship of Ferdinand Marcos.  Poor policies have severely stunted its long term potential in the past.  While much better, the current government and overall culture still suffers from extreme corruption.  Its been observed that you have to bribe the airport employees to even get an answer about the location of the bathrooms.  
  • While growing, as with most global economies, there are indicators of slowing growth and demand, particularly with exports.  Second quarter showed significant drops in exports to its trading partners in Japan and Asean.  Its top export markets are:

  • The European crisis and China slowdown will play a significant role in Philippines growth, decoupling is a myth.
  • Poorly developed infrastructure and people productivity.  To really sustain and grow for the long term, Philippines would need significant improvements to its infrastructure and focus on education as there still remains significant socio-cultural issues and an extremely large poverty rate.  Unemployment currently stands at 6.9% though underemployment remains high at 19.3%.

How to Invest:

  • More details to follow but one suggestion is the iShares ETF: EPHE


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