Philippine economy seen heading toward high-growth path
CLSA study sees start of private investment cycle
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.
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