Frontier Nation: Philippines

To most people, the mention of Asia would evoke vivid images of milling crowds of the streets of India or of Chinese factories churning out cell-phones by the thousands. South East Asia on the other hand, a region with 11 countries, has mostly lived in the shadows of these two giants. That however, is now changing.

As the global economy continues to flounder, the economies of South East Asia have managed to insulate themselves from the negative environment and have continued to grow. Of these, Philippines has been one of the stars, growing at 6.4% in the first half of 2012. The Philippine Peso picked up 4.6% against the US Dollar (best performing Asian currency), the stock market is up 19% for the year and its debt has yielded returns of over 16.5%.

The dynamic new leadership of President Aquino, long-term demographic factors and a thriving Business Process Outsourcing (BPO) sector is increasingly attracting the attention of global investors. Credit rating agency Standard & Poor's upgraded Philippine government debt to BB+, just a notch below investment grade and foreign direct investments into the country continue to show strong growth.

But this is not the first time that South East Asia has caught the attention of investors. People were equally excited about South East Asia, if not more, in the 1990s. Until 1997, the region received large inflows of money. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore, and South Korea experienced high growth rates of 8-12%. This achievement was widely acclaimed as the "Asian Economic Miracle". But by 1997, Thailand's economy had developed into a bubble fueled by "hot money". The Thai Baht collapsed (it fell by close to 40%) and most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices. Could this current revival of interest in the region be a fore-runner of another such crisis?

In this report, we undertake a dispassionate and wide-ranging examination of Philippines as an investment destination. Apart from the standard economic metrics of GDP growth and demographic outlook, we look at its geography, its political climate and social stability, all of which, in our opinion, should have appropriate weight in an asset allocation decision. This should allow you to take an independent and informed decision on the desirability of investing in Philippines.

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