An asset manager says of all the countries in the world, the Philippines offers first-time investors the best opportunity to become millionaires.
Philam Asset Management Inc. president Ferdinand Berba says by investing in the 30 largest corporations in the Philippines, through an equity index fund, an investor who places an initial P5,000 and adds P1,000 a month over a 10-year period, is poised to become a millionaire.
“If you put P5,000 in an index fund and top it up with P1,000 the next month and if you do it on a regular basis and you do it for over a period of, say 10 years, you will become a millionaire,” Berba says in a recent news briefing at Makati Diamond Residences during the launch of the Pami Equity Index Fund.
Pami Equity Index Fund is a new mutual fund that tracks the growth of the PSEi, the 30-company benchmark index of the Philippine Stock Exchange. It is recommended for aggressive investors who believe in the potential of the local stock market, he says.
“Many people think that millionaires are a select few. With an index fund, what we are saying is that if you ride with the growth of the Philippines, many will become millionaires. It is a part of that inclusive growth strategy. For Filipinos to start to invest, it does not have to be very expensive,” says Berba.
Berba says not even the 2016 elections will stand in the way of the Philippine growth trajectory, saying whoever becomes the next president will inherit a strong economy supported by more than $50 billion worth of foreign fund inflows annually. That will be good for the stock market, he says.
Philam Life’s head of equity fund management Eduardo Banaag Jr. agrees, saying the Philippines is the best place to grow wealth today. He says with large excess funds in the financial system, supported by the current account surplus, and the rise in earnings of listed companies, the local stock market is bound to set higher levels in the coming months and years.
Banaag says there is a strong correlation between the savings-investment gap and the stock market or between earnings of listed companies and the stock market. “If earnings are going up or increasing because we have a growing, robust, vibrant, resilient economy, then the [stock] index should go up as well,” he says.
Banaag says while gross domestic product grew at a disappointing 5.2 percent in the first quarter of 2015, the figure remains one of the fastest in Asia. The fact that a 5-percent growth is considered disappointing in the Philippines only proves that the country is expected to do very well, he says.
What keeps the stock market from rising faster is external in nature. Banaag says the recent volatilities in the market caused by the debt crisis in Greece or the slowdown in China may be over. “Much of the foreign selling is now behind us. This has nothing to do with the Philippine economy. It has nothing to do with earnings. Therefore, it should not be a concern,” says Banaag.
He says the stock market will continue to rise, given the sustained economic growth, excess funds in the country and rising income of publicly listed companies.
“Companies are making profits. That is good for the stock market. Fortunately, we think the market should be valued at where it is currently. Yes, it is expensive, but for the right reason. The most common metric for valuation is your price to earnings ratio. Today, it is at 18.5 times. We think it will stay there until yearend. After 2015, the market will live on. It will not be the end of the world. There is 2016 and earnings will continue to grow and the Philippine economy will continue to grow,” says Banaag.
He says the PSEi should climb past the 8,000-point level by end of 2015. “We think that given the intrinsic value or the right valuation of this market, the index should be at 8,080 by yearend. That is our estimate,” he says. The PSEi closed at 7,617 on July 16.
“8,080 represents where we think it should be, but it may not necessarily end there. But we need to know where stock prices should be valued. That’s how stock investors should be guided. We have a growing and stable economy. The fundamentals are very strong. We are the envy of many foreign fund managers. In many occasions, it has been said that the Philippines is now a haven of equity investments,” says Banaag.
Banaag says with a current account surplus that implies a stable exchange rate and an extended period of low interest rate, “investors should be comforted by the fact that a domestically-driven demand implies that our stock market will weather any ups and down in the global economy.”
Berba says the current account surplus of the Philippines is supported by rising remittances, business process outsourcing revenues, tourism receipts and foreign direct investments. The Philippines posted a current account surplus of $12.6 billion in 2014.
“Many of the difficulties in the global economy today is because exports between countries are not as high as they used to be, because they are having problems. We don’t have that problem. When you look at our money-making capacity, we make our dollars through OFW remittances. Last year, it was about $24.1 billion. By the first quarter, that has grown by 6 to 8 percent. That is projected to continue to grow. The other nice thing about the Philippines is that it is not the only source of money we have. We have this BPO and call centers. Last year, they produced for us $18 billion. That is already close to the OFWs $24.1 billion,” says Berba.
“It is projected that the BPO/call center industry over the next two years will most likely equal OFW remittances or even exceed that. You can imagine two sources of income that other countries do not have. Plus, tourism. Last year, there has been an increase in tourist flow. We are also starting to see money flowing from tourism industry. That is projected to continue to grow. The other thing is you have foreign direct investments that is growing also,” he says.
Tourism contributed $4.7 billion to the economy as 5 million foreign tourists visited the country in 2014 while foreign direct investments yielded a net inflow of $5.8 billion.
Berba says other economic figures are also encouraging. “So far, all the stats are showing they are good. This was projected last year. We are projected to grow 6 percent year-on-year. That is good. Very few economies could sustain that. Even if we had a bad first-quarter GDP growth of 5.2 percent, if you look at other countries, we are still number three in the Asian region. We are still growing faster than most countries. Our inflation rate is controlled. It is projected to be 2.4 percent by the end of the year. Last month, it was down to 1.2 percent. So the likelihood that we will be able to maintain this is very high,” says Berba.
Berba says not even the 2016 elections will stop the economy from growing. “The economy continues to go up. That is foreseen to continue, regardless of who the next president will be. We are growing better than others,” he says.
The Asian Development Bank expects the Philippines to grow 6.4 percent in 2015 and 6.3 percent in 2016, making it the fastest growing economy in Southeast Asia.
Berba says the growth will be sustained over the next decades, as the country enters the so-called demographic sweet spot, where the younger population becomes part of the labor force. “Countries that have older population have difficulty in growing their economy…But we are just entering the sweet spot this year,” he says.
“Goldman Sachs says by 2050, we will be the 14th largest economy in the world. HSBC also says that the Philippines will be the 16th largest economy in the world and number one in Southeast Asia by 2050. More recently, the Centre for Economics and Business Research says the Philippines will be in the top 30 economies by 2028,” says Berba.
“If this is the view moving forward and you want to take advantage of that view, then you must be invested in the Philippines. And the best way to be invested in the Philippines is to do it via an index fund,” he says.
“An index fund mimics your market, mimics your economy. If your market is doing well, then the fund is doing well. That’s why we say for investors, whether you are old or new, this is a good fund to have because you don’t need to be very smart or to understand the basics of it,” he says.
“For us, it is also very easy to invest. All you need is P5,000. This is the easiest way for inclusive growth. If each of us will put in P5,000 in an index fund with Pami, then we should be okay,” says Berba.
Banaag says the current volatilities in the market provide an opportunity for new investors. “As they say ‘buy low and sell high’. With volatility, in a sense it is not at all bad because it gives you a chance or that window to buy. These days offer a good window to buy. If you believe in the Philippine economy, if you believe in the extra savings and earnings of companies, then it [stock market] is definitely going up,” says Banaag.
Banaag says with Pami Equity Index Fund, investors can grow with the country’s 30 largest corporations that comprise the PSEi. These companies are spread among a range of industries and are key players in the Philippines’ economic growth, he says.
The equity fund, however, is classified as high risk because of the wide swings in the stock market. Pami recommends it for aggressive investors who are aware of the risks in investing in stocks and those who believe in the upside potential of the Philippine stock market.
The fund will have a launch price of P50. Holding period is six months from the date of investment, with an early redemption fee of not more than 1 percent. Pami will collect 1.5 percent in annual management fee.
Pami is Philam Life’s asset management subsidiary, whose assets doubled to P40.698 billion in 2014 from P21.903 billion in 2004. It is one of the largest asset and wealth management companies in the country, managing mutual funds from different asset classes.
Pami is a wholly-owned company of Philam Life, a large life insurance company and a member of the AIA Group, the largest pan-Asian life insurance group.– Roderick T. dela Cruz