Investors wanting to profit from current market conditions would do well to allocate their assets to Asia, especially the dynamic economies of the Southeast Asian region.
This is according to renowned equity strategist Christopher Wood of international stock brokerage firm CLSA, who singled out the Philippines as one of the most attractive investment stories today.
“You have to be invested in Asia and in Asean, in particular,” he told a gathering of the Asia Society in Makati City on Monday, referring to the 10-member Association of Southeast Asian Nations. “And within the Asean, you have to be invested in the Philippines.”
The industry benchmark for investment allocation—the Morgan Stanley Capital International (MSCI) Index—recommended that international fund managers allocate just 1 percent of their funds to Philippine assets. But Wood said he believed that a more accurate allocation level for the Philippines, given its growth potential, would be 9 percent of a fund manager’s portfolio.
The variance of 8 percent could indicate further capital inflows over the near term, he explained.
In particular, Wood pointed to the consistent strength being exhibited by the business process outsourcing (BPO) sector—itself a form of foreign direct investment, he said—as well as the steady growth of dollar remittances being sent yearly by expatriate Filipinos to their relatives back home.
During the briefing, the CLSA strategist outlined the country’s strengths, with each indicating that the Philippines was in the “early stages” of the credit cycle and would consequently continue to have a large upside in the investment cycle.
Wood urged potential investors to take a close look at the loan-to-deposit ratio of the Philippine banking system, which remained significantly below the levels reached during the 1997 East Asian financial crisis.
According to CLSA data, the country’s loan-to-deposit ratio stands at a little above 70 percent, compared to more than 100 percent during the crisis 15 years ago.
The low ratio showed that both consumers and corporations remained significantly under-leveraged and could borrow more from banks to finance their investment or consumption activities, either of which would help boost Philippine economic growth.
The CLSA chief warned, however, that the Philippine stock market remained one of the most expensive in the region and said that a correction of up to 30 percent in value was possible.
“But any correction should be seen as an opportunity to add to your position,” he said.
Wood added that the Philippine government must focus on improving the country’s infrastructure through its public-private partnership (PPP) program for the economic gains to become sustainable.
“Investors have been disappointed with the slow progress of the PPP program, but it’s not a disaster,” he said. “I understand the delays are because of the need for due process.”
“But if nothing gets done by 2016, that would be a negative,” the CLSA official said, referring to the end of President Aquino’s six-year term.