Offshore investments getting hotter for Filipinos
By Ma. Salve Duplito
INQUIRER.net
First Posted 21:36:00 09/14/2008
Filed Under: Economy, Business & Finance,Personal Finance
AT 25 YEARS OF AGE, marketing management graduate Kendrick Chua has already invested—and lost money—in offshore instruments particularly in China, real estate investment trusts and a Euro-denominated fund. To say that his $10,000 joint investment with his mom in a private bank is “not doing so well” is an understatement, but the young investor is not fazed.
“I am investing for the long-term and I know that you cannot learn without making mistakes. Sure, I lost money, but I’m learning too and I really like investing,” Kendrick says.
Kendrick hopes to have more access to options offshore to stabilize his portfolio, chunks of which are also invested in the local stock market and local mutual funds. Experts say this is the whole point of real diversification—investment language for putting your eggs in different baskets so that if some of the baskets don’t do too well, you can save the eggs in the other baskets.
The rising demand for offshore investment options may have something to do with the fact that the local market’s pulse lately has been as boring as that of someone in a comma, but experts say that in good times and bad, local investors can benefit from a well-diversified portfolio. That means not just dividing your investment money in different kinds of instruments, but also in different country baskets.
There are fears that this trend will siphon money out of the Philippines and flatline an economy already reacting badly—just like the rest of the world—to a flailing US market. Some private banks, in fact, were wary of giving interviews to the media about their operations. Investors argue, however, that you tend to be less skittish with your local basket if your offshore baskets are somehow doing better.
In that sense, giving local investors options to invest money in other more stable economies will do the country a world of good, says Doby Atilano, a registered financial planner and founder of the Global Investors Center.
GIC is an eight-month old company that flies in investment experts from Fortune 500 companies on a monthly basis to teach prospective offshore investors about the wide range of investment instruments available to Filipinos looking for more options. The company doesn’t sell these investment instruments locally; that’s not allowed by the Securities and Exchange Commission. GIC is purely about investor education.
“If you think about investments as food, what we have here are all adobo. They are all the same, iba iba lang ang timpla,” says Atilano.
Atilano grew up listening to talks of offshore investments around the dinner table, his father having started a brokerage company in Hong Kong in 1982. Coming back to the Philippines after a UK education, he was appalled by how little the average Filipino investor knows about exchange-traded funds, investment platforms and many other options “even cabdrivers” in other countries know about and invest in.
“There is something wrong about how education on investments is done in this country,” Atilano says.
Jacque Dinglasan, GIC marketing director insists that a serious investor does not have to be filthy rich to taste good products all over the world. Sure, the minimum investment levels are higher than the usual mutual fund entry level of P5,000, but it does not have to be as high as what private banking clients need to invest.
As of now, there are at least six ways local investors are investing offshore:
1. Filipinos fly to other markets like Hong Kong (most convenient) and open an account with a financial services company or brokerage firm. Then manage the account from here. Subsequent investments are wired to the company.
2. Opening accounts with Internet-based companies like Ameritrade, Charles Schwab, eTrade and others. Charges start at a flat rate of $9.99 per trade, but there is no minimum investment. “There is no board-lot requirement for US stocks, so one can actually buy eight shares of Microsoft, two shares of AIG or even just one share of Citigroup, but the commissions per trade will make the transaction costs too high,” says Alijeffty Gonzales, a registered financial planner and president of ACG Advisors Inc. Choices would be stocks and exchange-traded funds, and the process of opening an account with foreign online brokers are very similar to the opening of accounts for local online trade. Investors can download forms from the site, send them back via courier, wire the money and a company representative would call to confirm and provide the access name and password. There is no need for appearance as one additional requirement would be a proof of billing (utility bills, etc.) Investors, however, need to do their own research and monitoring of the US and other markets.
3. Through private banks that have presence in the country like Citigold, Standard Chartered, HSBC and ING, among others (minimum investments can reach $10,000). Private banks give regular investors’ briefings, research and analysis, and handle documentary requirements. Investors, however, are limited to structured products offered by the private bank.
4. Local independent wealth advisory companies that are not tied to a particular company’s products. Howroyd & Benjamin Inc., for example, teaches investors how to pick their own foreign mutual funds to create customized investment baskets based on their risk profile and preferences. The company charges a $1,000 advisory flat fee for each financial plan, regardless of the length of time the plan is in force (say 10 years or more). No additional charges are made every time the investor decides to shift his money between funds.
5. Financial services companies like AIG (principal-protected, five-year locked-in investment in diversified equities in over 20 emerging markets), Sun Life Asset Management’s global funds and the ALFM Family of Funds. Minimum investments are lower (some at $5,000), and their local presence makes them attractive to investors.
6. Foreign-based wealth advisory companies that come to the country on a regular basis to meet with high net worth individuals, and facilitate their investments overseas. Minimum investment levels are high, and it may be tough to distinguish scams from the real deal. When things don’t go well, local investors don’t have any legal recourse.
Bonner Dytoc, chief operating officer of Absolute Traders, says liquidity, depth, established rules on short-selling, longer trading hours make trading in offshore markets very attractive to local investors. “It really is something for an ordinary investor to look at. It allows traders to go and strike where there is an opportunity, whether here or abroad,” says Dytoc.
The new, wired world also makes it easier now for investors to protect themselves from scams, which is a major concern in offshore investing. Dytoc advises making Google your best friend and finding out first whether a company is legitimate or not.
Dytoc and GIC’s Atilano also recommend calling the company and making sure the broker or agent selling the investment is a bona fide employee, and finding the time to call the regulator of that company or at least searching its website to find out if the company is registered. Atilano also stresses that understanding the jurisdiction -- the country where the investment or company is registered -- is a major step in knowing how protected your funds are by local laws.
“A British Virgin Islands registration may look sophisticated to some people here but the reality is, it does not offer any protection. Anybody can set up a company in the BVI. An Isle of Man jurisdiction, on the other hand, immediately tells you about the levels of protection that you can benefit from,” he explains.
Atilano said agents or brokers of legitimate companies will not request for cash transactions, but require investors to wire the money directly to the company. “When they ask you for money, that’s already dubious,” he says.
GIC’s Dinglasan also notes that the usual warnings about offers of consistent high returns should always be heeded. “If someone is offering high returns, quickly and consistently, better get out,” she says.
ACG Advisor’s Gonzales also says that the real risk is getting into “sophisticated” investments that investors don’t understand. “The common culprit as usual will be our perchance for high returns, product “sellers” usually focus the discussions on “how much” and “how easy” it is to make X amount in a matter of X months, how they have superior information and research to identify opportunities in the market and then the hapless investor-to-be, overwhelmed by all those technical jargons and technical charts would meekly affixed their signature on the account opening forms,” says Gonzales.
In 2007, around P70 billion personal investments in the country was lost through scams in dubious companies. Imagine that kind of money placed in legitimate investments that will allow Filipinos to truly diversify their portfolio and invest for the long-term.
(For more personal finance articles, visit MoneySmarts at http://blogs.inquirer.net/moneysmarts.)
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