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Why the Philippines has the best macro story in Asia

Why the Philippines has the best macro story in Asia

The Philippines has the best macro story in the Asia Pacific region, according Deutsche Asset and Wealth Management’s head of emerging markets, Sean Taylor.

Taylor (pictured), who is also regional investment head for Asia Pacific, said there were three key growth drivers for the country.

‘The first driver is inward remittances,’ Taylor told Citywire Asia. ‘Increasingly, what we are seeing is that more Filipinos are sending remittances from better-paying, middle management jobs abroad.

The Philippines is one of the world’s top countries receiving remittances from its workers abroad, who send back around $26 billion annually. Most of these remittances come from workers in the Middle East, Europe and the US, he said.

‘There was a worry that remittances would slump with declining oil revenues in the Gulf, but after a dip in December 2014, the numbers were up again in January,’ Taylor said.

Taylor said the second driver is a boom in the business process outsourcing industry, which is creating a professional class of workers in the country and helping consumption.

‘The trend is positive not just in terms of revenues but also in helping young people make big-ticket purchases, such as buying a house with the help of a mortgage,’ he said.

Both trends are having a significant influence on local consumption, Taylor said. ‘Inward remittances, for instance, are transferred straight from the overseas worker to the Filipino household. It’s direct cash, not debt that is being spent.’

‘In many other EMs, the consumption cycles are driven primarily by access to credit, which is not necessarily healthy, depending on how well the credit is controlled,’ he said.

The third driver, which is cyclical, is the fact that presidential elections are due next year. ‘That will also be positive for spending in the medium term,’ Taylor added.

Equity over debt

Taylor said he prefers Philippine equities over debt currently, especially since the yield curve of the Philippine bond market is quite flat.

Taylor expects an earnings growth of 15-20% for Philippine equities, which is much higher than the 9% earnings growth expected for Asian equities. 'The country is also a big beneficiary of oil prices since it is an oil importer,' he said.

In terms of GDP growth, the economy is set to expand by more than 6% for the second year running, making the Philippines one of the fastest growing economies in South East Asia.

Nevertheless, Taylor acknowledges that it is an expensive market, and the small size poses a limitation for foreign investors.

Across Asian markets, Taylor said he remains overweight the Philippines, India and China, while being underweight Korea and neutral on Indonesia.

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