Emerging markets are intriguing and exiting to invest in from a return perspective. Asian markets in particular have and will continue to provide interesting investing opportunities, as reforms and expanding economies continue to attract foreign money. This article will guide you through basic information about the Philippine Stock Market and tips on how to trade shares listed in Philippine exchanges.
THE PHILIPPINE STOCK MARKET – BASIC INFORMATION
The national stock exchange of the Philippines is called the Philippine Stock Exchange (PSE). The main index connected to the PSE and with which traders can benchmark against is the PSE Composite Index (PSEi); this index is comprised of the 30 largest firms traded on the Philippine Stock Exchange.
Along with Indonesia and Thailand, the Philippine has been the fastest growing economy in Asia. The Philippine economy is the 3rd largest in the ASEAN (the Association of Southeast Asian countries) constituting Malaysia, Singapore, Indonesia, Thailand, Brunei, Cambodia, Myanmar, Laos, Vietnam and the Philippines. The main export products are electronic products, fabric and garments, and fruits; this has been a shift from the not so distant past when the Philippine economy was based mainly on agricultural activities.
Unlike some of its Asian neighbors such as Japan, the Philippine is mostly comprised by a young population, and together with large infrastructure plans for the country this points towards a boost to the Philippine economy in the years ahead. The Philippine will most surely continue to be an economy that is expanding.
TRADING PHILIPPINE STOCKS
The Philippine Stock Market is open to foreign retail investors (meaning traders with smaller portfolios), with certain limitations but nothing that will affect you much as a trader. You need to check with your broker if they offer the possibility to trade Philippine shares, and how much this might cost. It would be good at this stage to compare different brokers to see which one can offer the lowest commission fee and other trading costs. It is however a bit tricky to get started, and you need to submit certain information such as billing information and proof of income. Trading Philippine stocks directly might not be the easiest choice for you, and there are other indirect ownership alternatives open for you that can work just as well, minus the currency risk of having Philippine shares that are listed in the Philippine peso.
The easiest and most accessible way to trade Philippine shares by foreign investors is via Exchange Traded Funds (ETFs). Exchange Traded Funds (ETFs) are funds that are traded in a similar way as stocks on different exchanges; check with your country’s major exchanges on which Philippine focused ETFs are available for you to trade. There are ETFs focusing on buying shares tied to Philippine companies, and with different industry focus and niches.
Another way of trading Philippine shares is via American Deposit Receipts (ADRs). ADRs are stocks trading in the US and represent a set of stocks connected to a foreign company. For traders in other countries then the US, talk to your broker or local major exchanges on what your country’s equivalent is of ADRs and which companies are available to trade in via Depository Receipts.
Both ETFs and ADRs are listed in US dollars, or the currency of the exchange they are listed in (e.g. pound of it is a UK based exchange).
As a tip, seeing to the infrastructure investments mentioned briefly above, glancing at infrastructure related shares and ETFs and ADRs containing these might be quite a good idea; at least it is worth investigating further.
RISKS AND POSSIBLE ISSUES
The political risk associated with trading in the Philippines is unfortunately there. The installation of Duterte as president is one such example, a choice that has not ceased to bring turmoil to the Philippine Stock Market due to the President’s many worrying commentaries and actions.
An example that we rather forget would be Duterte’s outburst in September 2016, where he threatened to leave the UN and called the US President Obama profanities; this led to the immediate exodus of money from the Philippine, and it would not be the last time. Foreign money continues to pull out as global investors’ worries grow larger. There have been political actions that have been positive, such as promises of regulatory and tax reforms. Some of the foreign capital flight is tied to the situation post-financial crisis in the US and Europe.
Though the economy is a growing one, it is not a part of the G20 and has ways to go before becoming a “true” emerging market such as some of its more stable Asian neighbors.
More regulatory and structural reforms such as securing ownership rights, tax reforms and business related regulation are also needed to make it easier to attract foreign capital, and secure long term growth via offering a stable economic platform for local firms to grow and to raise the base income of the poor. The projections for the country are positive, but dependent on changes and reforms being conducted in the medium term as reported by the Word Bank and other observers and analysts, something that is dependent on the current president of the Philippines, Duerte.
IS IT WORTH IT?
If you choose to invest in the Philippines using ETFs and ADRs, it is an easy task and one that can prove to be fairly productive return wise. The Philippines, despite its risks, can prove to be a good investment in the long term and it would be a wise choice to keep a close look at it, and invest some of your portfolio dedicated to foreign trading and exotic assets.
The Philippine economy is set to expand by 6% until 2018, making it the fasting growing economy in the world. This would be a really good return looking at the meager projections and expectations seen in the rest of the world. Do you want to be in or not, and are you ready to take the risks seeing the possible returns ahead?