Philippine economy seen heading toward high-growth path

CLSA study sees start of private investment cycle

By: Doris C. Dumlao
Philippine Daily Inquirer

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The Philippines is undergoing a renaissance that looks all set to bring the economy to a higher trend growth and power stocks to new heights, according to regional investment house CLSA Asia-Pacific.

In a research titled “The Eagle Flies Again” dated February 20, the CLSA report written by analyst Mitzi de Dios said that like the rare endangered Philippine eagle, a private sector investment cycle was a rare sighting in the country. But now, it said the country was on the cusp of another investment cycle for the first time in 15 years driven by political stability, rising business confidence, low interest rates, robust balance sheet and the country’s long-term demographic potentials.

“The Philippines soars like an eagle, again,” the research said, adding, however, that this time around, there was hope that this nascent recovery would not be as endangered as that rare eagle.

After years of false starts and missed opportunity, there was a real sense of optimism building in the business community, the research said, suggesting the time was right for the Philippines to shed the stigma of being the “sick man of Asia.” Beyond the huge remittances from overseas Filipinos, CLSA said the country could now count on other major growth drivers.

“The transformation continues for Asia’s once most promising. The service sector continues to grow with the BPO [business process outsourcing] segment underpinning rising employment and per capita spend. Tourism and gaming are other drivers,” the research said.

Well known globally for the Philippines’ quality service sector, CLSA said the BPO sector would likely see its employment doubling to 1.2 million and generating revenues of $25 billion by 2016. The employment opportunities will keep more locals at home while per capita income should improve and the middle class continue to grow, the research said.

The country’s middle class was growing at 9 percent a year and by 2015 could well represent a fifth of the Philippines’ population, the research said.

“For sure the country’s middle class is still nascent, especially in areas such as investment. Most have their savings in fixed income and have yet to invest in equities in a big way,” it said.

CLSA recounted that the last investment cycle in the Philippines took place in the early 1990s under President Ramos, who deregulated the telecom and banking sector, which coincidentally laid the foundations for the growth and development of the BPO industry over the past decade.

In the past 12 years, the country’s gross domestic product growth averaged 4.54 percent with population growth of 2.6 percent in the past 10 years. CLSA said trend GDP growth should be higher starting 2013.

“The country’s economic growth has lagged its regional peers. But, without much fanfare, the economy has transformed itself into an emerging services center, laying the foundations for today’s growth,” it said.

What all this meant for stock market investors, CLSA said, was that old reliable names and upcoming companies would be the ones investors should own. By sector, it said conglomerates, banks, construction and infrastructure firms would likely outperform.

CLSA has recommended a “conviction buy” on Ayala Corp., Metro Pacific Investments Corp., Cebu Air, Philippine National Bank, Security Bank and Robinsons Land Corp.

For specific infrastructure play, CLSA also has “buy” ratings on construction firms Megawide Corp. and EEI Corp. and a buy rating on Metrobank.

Bonifacio Global City was cited as a “microcosm” of the change afoot in the broader economy. “Fifteen years ago it was a military camp most famous for the incarceration of Sen. [Benigno “Ninoy”] Aquino. Today, it is home to high offices, luxury residential towers and upmarket shopping centers catering to the emerging middle class,” the research said.

The CLSA report also noted that total tourist arrivals hit an all-time high of 3.9 million in 2011 and was forecast to grow at double-digit rates over the next few years, eventually hitting more than eight million by 2016. The tourism industry employs 3.7 million people and tourism receipts accounts for 2 percent of GDP.

Philippines to shine in global community soon, says finance guru Suze Orman

By: Doris C. Dumlao
Philippine Daily Inquirer

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SUZE ORMAN: Build on cash and you could never collapse. Photo by Arnold Almacen

MANILA, Philippines—Visiting personal finance guru Suze Orman sees the Philippines soon shining in the global community as an investment hub and having more of its households emancipated out of their dependence on overseas remittances.

Orman, who was once described by USA Today as a “one-woman financial advice powerhouse,” said, however, that Filipino consumers should avoid going the way of the US, which had allowed its economy to grow on credit card and lending to people who could not afford homes and have been grappling with more people “on a highway to poverty.”

“Build this country on cash so that it could never collapse, then you can change your lives,” said Orman, who was raised in an unruly Chicago neighborhood and who used to wait on tables and sleep in her car before transcending poverty as a broker at American investment house Merrill Lynch.

The host of the award-winning Suze Orman Show, which airs every Saturday night on CNBC, is in town to fulfill a promise made for the last five years to her friend Doris Magsaysay-Ho, chairwoman of Asia Society Philippines, to help inspire Filipinos in their quest for financial freedom.

Orman, who earns around $190,000 on speaking engagements in the United States, agreed to speak before Filipinos pro bono and expressed interest in coming back and helping draft financial literacy programs for the country. In a speech before the employees of the Ayala-led Bank of the Philippine Islands, Orman said the Philippines would likely shine in the global arena.

“You’re going to be taken note of in other countries, see investment money come to and you’ll see that the time for the Philippines has just about arrived. The question is, will you be able to hold on to the gifts that are about to come your way?” she said.

The American personal finance guru spoke strongly against incurring debt to purchase non-essential things, noting she had watched her own country fall apart because of this.  She said consumers must distinguish between good and bad debt, good debt being amortizing to one day own a home. On the other hand, she said that credit card debt was “very bad debt.”

“If you have credit card debt, what that says about you is that you are buying things that you can’t afford,” she said, urging banks to issue credit cards only to those who could responsibly use credit.  Ideally, credit card users should use their card all they want but pay everything when the bill arrives, according to Orman.

In the US, she said it was a common mistake for banks to even increase the credit limit when somebody had maxed out his ceiling and was only paying the minimum due.  The best way to help these people would be to stop charging interest and as the borrowers pay off, reduce their credit limit.

For overseas Filipinos, Orman said her advice would be to consider whether sending money to adult brothers or relatives would only be encouraging dependence. “Is it possible that it’s hurting them rather than helping them?,” she said, adding that some people may not reach their potential or may not be driven into making contingency plans because they have remittances to fall back on.

But she stressed that for parents, it’s a whole different light, as she herself would want to take care of her mother.

For young people, they should realize that their best commodity is time and that by starting to regularly save a portion of their earnings regularly, they will accumulate more wealth with the help of compounding, which means earnings from an initial investment are reinvested over and over, according to Orman.

With the help of compounding, she said a person who would set aside $100 a month starting the age of 20 would end up with $1 million upon reaching 60.  But if one waits until age 30 to start setting aside, the same person will end up with only $300,000 at age 60. This 10-year delay in starting an investment plan has thus cost the person $700,000, she noted.

Before becoming a prominent personal finance expert and inspirational speaker, Orman used to earn $400 a month as a waitress. She waited on table for seven years until the age of 30, when she dreamt of opening her own restaurant. She asked her mother for $20,000 to open her restaurant but her mother was unable to help her. One of her regular customers took a pity on Orman and pooled $50,000 from other customers to lend to her for 10 years without interest. She brought the money to Merrill Lynch but the broker convinced the then naive Orman to invest everything by speculating in the stock market. She said she was made to sign papers to make it appear that she was a sophisticated investor who was qualified to invest in stock options. Within three months, she lost all the money.

“If I hadn’t lost that money, I won’t be standing here today. Nothing ever goes wrong, everything happens for the best,” she said.

Realizing she still owed $50,000 to her customers, she thought of getting a job as a broker at Merrill, which at that time never hired female brokers. She was hired but with a caveat that she would be fired in six months.

One Merrill Lynch executive took a liking at Orman and advised her to sue Merrill Lynch for the bad handling on her $50,000 even when she was still an employee. This she did and because of the ongoing case, Merrill Lynch could not fire her.

As the case dragged on, she said she became one of Merrill Lynch’s top producers and realizing that the firm was earning more money than Orman’s $50,000-suit, the brokerage gave back her money plus interest.

Orman said this only showed that any wealth that she had made was something she had worked for.  Even as she has gone a long way since then, Orman is not fond of splurging on jewelry, clothes or purses and has chosen to live in a tiny apartment in New York even if she can afford a penthouse.

“Every single person in this world has the ability to be more and have more and it’s the choices that we make about ourselves that become our net worth,” she said.