Personal Finance

Invest in Philippines, the ‘Dark Horse’ of Asia: Expert

CNBC.com
WATCH LIVE

As far as emerging markets go, the Philippines is seldom the choice investment destination, but one analyst says the Southeast Asian nation could well become the “dark horse” of the region, thanks to its favorable demographics and sound economic fundamentals.

People walk on a busy street in Quiapo on October 28, 2011 in Manila, Philippines. The United Nations today released their 2011 State of the World Population Report, which indicates Asia is home to 60 per cent of the world's population. The Philippines has a young population, with 54 per cent of the population under 25.
Dondi Tawatao | Getty Images

The Philippine’s “very robust and young population" presents a ready pool of talent, says Mark Matthews, Head of Research Asia at Bank Julius Baer. He expects the country’s population of 93 million, around half of whom are below 20 years old, to more than double to 190 million by 2040.

With fertility rates declining in the West and in Asian countries like Japan, Korea and China, the Philippines will increasingly become an important source of immigrant labor, he added.

"And the interesting thing is 80 percent of them speak English," Matthews said. "Most people who speak English in third world countries, they don't want to go overseas to work in sort of manual labor. But the Filipinos have no problem doing it...and they are making three times as much as they are making back at home, and they are sending it back home."

The Philippines is already one of the world's biggest recipients of remittances — the fourth biggest in 2010 according to the World Bank — which account for a tenth of the country’s gross national product. According to the country's central bank, monthly remittances hit a record high of $1.7 billion in September with total remittances for the year expected at $20 billion.

The country remains in an enviable position fiscal-wise. Last year, for the first time in history, the Philippines' gross international reserves eclipsed its external debt level, making it a "creditor" nation, according to a report by Bank Julius Baer. The country is expected to end the year with a record $76 billion in foreign reserves, which is part of the reason why ratings agency Fitch upgraded the country's credit rating to BB+ from BB in June, just one notch below investment grade and on par with Indonesia.

And with a debt-to-GDP ratio among the lowest in Asia at under 50 percent, the Philippines is one of the most under-geared countries in the world, which makes it a less risky bet for investors. "That means it will no longer be 'another domino' in times of crisis," the Bank Julius Baer noted.

Despite being one of the best performing stock markets in Asia this year, with gains of over 3 percent, compared to double-digit percentage losses in China, Japan and Singapore," Bank Julius Baer says the market is still attractive on a valuation basis.

"The market is not expensive on 14.5x 2011 and 12.5x 2012 P/E, versus an average over the past 15 years of 12.5x," the bank noted.

The bank is not alone in its bullish view of the Philippines. A recent survey by Bank of America-Merrill Lynch showed fund managers increasing their overweight position in the country, making it the third most preferred market, trailing China and Indonesia.