[MANILA] It's more what the Philippines doesn't have than what it does have that's making the country Southeast Asia's safe haven amid an emerging-market rout.
Relatively low levels of foreign investment in its bonds and stocks are shielding the Philippines from an intensifying selloff, while a comparative lack of raw materials means it's less vulnerable than Indonesia or Malaysia to sliding commodities prices. Stability under President Benigno Aquino stands in contrast to Thailand, ruled by the military since May 2014, and Malaysia, where the prime minister is facing calls to resign amid a political scandal.
Philippine local-currency sovereign bonds returned 2.9 per cent over the last three months, the most in Southeast Asia. The peso has held up better than its peers, losing 4.5 per cent, compared with drops of 8 per cent in Thailand's baht, 12 per cent in Indonesia's rupiah and 18 per cent in Malaysia's ringgit. The benchmark Manila stocks index has also declined the least in the region over the period.
"It's definitely the regional star," said Edwin Gutierrez, who helps oversee US$13 billion as the head of emerging-market sovereign debt at Aberdeen Asset Management Plc in London. "In a world starved of growth, Philippine growth - albeit slowing - is holding up relatively well," he said, adding that a relative lack of foreign participation had protected the country from capital flight.
Business-Process Outsourcing The economy expanded 5.7 per cent last quarter from a year earlier, according to a Bloomberg survey before data due Aug 27. That would be an improvement from 5.2 per cent expansion in the first three months, although slower than 6.1 per cent in 2014. Indonesian and Malaysian growth slowed to 4.67 per cent and 4.9 per cent, respectively, last quarter, while Thai gross domestic product increased 2.8 per cent.
A burgeoning business-process outsourcing industry is aiding the Philippine economy. Revenue from BPO, which includes customer call centers as well as the farming out of accounting tasks, will rise to US$21.2 billion this year and US$25 billion in 2016 from US$18 billion in 2014, according to the IT and Business Process Association of the Philippines.
Money sent home by Filipinos living abroad, which makes up about 10 per cent of GDP, increased 5.6 per cent to US$12.1 billion in the first half from a year earlier. A net oil importer, the Philippines has also benefited from falling crude prices. The country ran a US$3.3 billion current-account surplus in the first quarter, compared with US$1.5 billion in the same period of 2014, according to central bank data.
The Philippines' consumption-based economy and steady dollar inflows mean it's insulated from China's yuan devaluation and US interest-rate increases, according to Jay Peiris, the International Monetary Fund's representative in Manila.
"It's very hard to think of a country that's less vulnerable," he said in an Aug. 20 interview.
Peso sovereign notes are the best performers in Asia after Taiwanese securities in the last three months, according to Bloomberg indexes. Thai debt returned 1.6 per cent, while Malaysian and Indonesian paper declined 1.1 per cent and 3.1 per cent, respectively.
Around 10 per cent of Philippine bonds are foreign-owned, according to BPI Asset Management and Trust Group, part of the country's second-largest lender. That compares with 39 per cent in Indonesia, 31 per cent in Malaysia, and 17 per cent in Thailand at end-March, Asian Development Bank figures show.
"Philippine fixed-income assets stand out versus their Asian peers largely due to the dominance of domestic investors," said Mario Miranda, senior vice president at BPI Asset in Manila.
Outflows from Philippine stocks have also been more modest than for regional peers. Some US$332 million has been pulled from the country's shares this quarter, compared with US$587 million from Indonesia and US$1.6 billion from Thailand. The Philippine benchmark share gauge is down 13 per cent in three months, trailing drops of 13.8 per cent in Thailand, 14.3 per cent in Malaysia and 21 per cent in Indonesia.
Saturna Bhd, the Malaysian unit of Saturna Capital, is overweight Philippine shares in its Asean portfolio as the country is a regional bright spot and less dependent on foreign funds, said Monem Salam, Saturna's president in Kuala Lumpur.
There are pockets of concern in the Philippine economy including companies with high levels of foreign-currency debt and property developers that engage in shadow banking, said the IMF's Peiris. The Philippine Exporters' Confederation warned last month that the peso's resilience was a potential threat to shipments. The currency is about 20 per cent undervalued, said Claudio Piron, co-head of Asia FX and rates strategy at Bank of America Merrill Lynch in Singapore.
Filipinos go to the polls next year to elect a new president, with Aquino prohibited from running for another six- year term. Since 2010, his administration has pursued tax evaders and corrupt officials, allowing it to collect more revenue to build roads and schools and boost cash handouts to the poor, while shrinking budget deficits.
Standard & Poor's has upgraded the Philippines' credit rating four times during Aquino's tenure and all of the three big ratings companies assess it as investment grade.
Strong growth fundamentals, a large English-speaking population, fiscal and monetary prudence, and political stability support the positive outlook on the economy, said Andrew Wood, the Singapore-based head of Asia Country Risk Research at BMI Research, part of Fitch Group.
"The Philippines' large and growing labour force, along with increased policy-making credibility, should continue to draw investors' interest over the medium term," he said. "We believe the Philippines can continue to outperform the region."