Sunday 31 March 2013

Philippines - Now at Investment Grade

One of the success stories that didn't didn't get around too much last year (or even today) is the relatively obscure investment market of the Philippines.

Their stock market jumped over 46% (yes you read that right) in 2012 and are up another 20% year to date in 2013.  Those are beyond just beating the market, they're killing the US returns.

Why?  Well for one, Philippines is still in the early part of the industrialization cycle so it has room to grow and the manual labor (read: population, its close to if not over 100 million now) to make it happen.  Fitch just recently upgraded the Philippines into BB+ yesterday, it is now investment grade.  Why is that important?  In theory it shouldn't be that big of a deal, as investment grade is sort of an artificial line someone thought up and drew.  But in reality, many funds and asset holdings are not allowed to invest in non-investment grade assets.

For example, pension funds for teachers or retirements, they're required to be safe and conservative funds as nobody wants to hear their retirement savings just got speculated away (imagine the riots there...).  So as a relatively universal line, those funds (and there's a LOT of them) would not invest unless they been "blessed" with an investment grade.

(Edit: Just a clarification, only Fitch has upgraded, the other 2 rating agencies have not yet.  Most funds require 2 of the 3 to provide investment ratings.  However, the agencies tend to follow each other.)

The Philippines now has that and the money is starting to pour in.

As per Bloomberg:

The Philippines Stock Exchange Index (PCOMP) surged to a record and the peso climbed the most since September after Fitch Ratings raised its assessment of the nation’s long-term foreign- currency-denominated debt to BBB- from BB+ yesterday. Foreign portfolio inflows into the $225 billion economy climbed to $2.1 billion in February, about 40 percent higher from a year earlier, after surging to a 10-year high in 2012.

Now what's the downside?  Well...where investment money flows...asset bubbles occur.  That much money going to a place that's not ready for it is a minor disaster in the making.  Many people point to the Asian financial crisis of the 90s as being caused by that.

I think there's a very real risk of it.  You don't just got up 60% in the stock market in 1.3 yrs without feeling a bit nervous...  The question now is whether its too late to jump in to ride that bubble a bit.  Hard to say.  Riding bubbles is incredible, you just have to know when to get off...


No comments:

Post a Comment