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Gains To Be Made From Investing In The Philippines


San Miguel showing 50% increase this year in stock price.

PLDT stock recovering from downturn and paying high dividends.

Investing in Philippines blue chips a good Emerging Markets play.

San Miguel announces strong 2015 results.

In January I published an article "Philippines Conglomerate San Miguel a Strong Emerging Markets Play". Since then the stock price of San Miguel (OTCPK:SMGBY) has risen by over 50%.

In March I published a further article on the Philippines market, "Philippines Long Distance Telephone Company: Solid Dividend, Strong Emerging Markets Exposure Makes this one a Buy". Since then the stock price of PLDT (NYSE:PHI) fell somewhat on talk of changes in the local telecoms market. It has since recovered and paid out a dividend, with a yield of 9.9%.

These developments show both the benefit and the hazards of investing in Emerging Markets. For the active investor who has the time and the inclination to follow the market closely, such companies represent good investment opportunities.

As for Emerging Markets in general, 2016 saw big inflows from international equity investors. Concerning their future direction, every economist seems to be able to give you a different perspective on that. Federal Reserve policy, China's economy and the oil price are all key elements. However if you believe in Emerging Markets as an investment play, then I think the Philippines is a much sounder bet than the much analyzed markets of Russia and Brazil with their extreme political risk profiles.

The Philippines Economy

My March article summarized the benefits of investing in the Philippines. The Asian Development Bank (ADB) and the IMF both forecast growth of over 6% in GDP for 2016. This would be one of the highest in Asia, or anywhere in the world. In fact 6% has been the average growth in the economy during the 6 years of the current government of Benigno Aquino. During this time foreign investment has more than tripled.

There are various bullish factors. The coming general election leads to increased domestic spending though some political uncertainty of course. Business out-sourcing, tourism and overseas workers' remittances remain strong, as does agribusiness. The country's major export is Electronics, which comprise 42.7% of all exports. These might be uncertain in 2016 dependent upon the economies of major trading partners China and Japan. The just released March trade figures from China are promising in this regard. A lower oil price strongly favors this energy import dependent economy.

A major risk for investors who think in USD is of course currency risk when investing in overseas companies. The chart below shows how the Philippine peso fared against the USD in 2015.

So the depreciation was not too radical, and better than most Emerging Markets in a year when the USD soared. This year it looks likely that the USD will be less strong against the peso, though predicting currency movements is an almost impossible task. Remittance inflows are set to remain strong. These should keep the current account in surplus in 2016-17 and underpin the...