Stock Update

The Economy Looks Promising (And So

Do Your Stock Market Investments)

I guess it happens every time there's a new President. 
People keep asking me, "With a Duterte presidency, what will happen to our economy? Will the stock market continue to rise?"

Our happy diagnosis: In the coming years, we believe the economy will continue to rise. We're NOT saying there will be temporary downturns—we will always have them. Up, down, up, down. But our long-term trajectory remains the same: The Philippines will rise!

And so will your investments.

Hallelujah.

But if you want to know what will happen to our economy (and therefore to our favorite stocks) before you look at what the new President will bring to the table, you must first look at the two huge pillars of the Philippine economy...

Our Two Economic Drivers

Economist Dr. Bernie Villegas said (before the elections), "The six to seven percent (GDP) growth we experienced for the last four years is going to be sustained whoever is elected as president."

So even without a new President, our economy was already going gangbusters. Because of these two drivers.

1.     OFW Remittances

OFW remittances (sometimes the only good news of our economy at certain stages of our history) gave us $25.8B in 2015. No matter how incompetent past administrations were, this kept our economy afloat.

Today however, there is a real concern that it may slow down, especially from the Middle East, because of low oil prices around the world. (From $100-plus a barrel, it's down to $30-plus.) Note that there are 2.5 million Filipinos who work in that part of the world, 40 percent of them in the Kingdom of Saudi Arabia.

Despite this, the government is still projecting three percent to five percent growth rate of the remittances. But more conservative analysts put it between two percent to three percent growth.

And then there's this sector that was started 15 years ago.

2.     BPO Industry (Business Process Outsourcing)

Last year, BPOs employed 1.1 million Filipinos and earned $21.2B for the country. Very soon, its yearly earnings will surpass OFW Remittances, because the BPO Industry grows 17 percent a year.

Some analysts are questioning the future of this industry—particular voice (call centers)—wondering if the demand for them will remain the same if the younger generation is adept at dealing with (mobile) websites, requiring no human intervention. While enjoying the fruits of its aggressive growth, industry leaders will need to adapt to the coming winds. Just based on these two drivers, the Philippine economy will be difficult to beat.
The big question: Will the Duterte Presidency add or subtract to this growth scenario?

Some economists are saying it will add.

4 Possible Pluses of the New Administration

I must repeat what I mentioned in the last Stocks Update:This essay is NOT about Duterte from a spiritual or moral perspective, especially with his conflict with the Catholic Church. This is also NOT the venue for my personal views about him. This is purely an economic discussion. With a Duterte Presidency, economists say there may be four potential positives:

1. Billions to Be Unleashed for Infrastructure Projects

Business people are talking excitedly about the prospect of new airports, seaports, roads, and railways all over the country. Fact: Massive infrastructure spending will prime the economy. And long-term effects? These projects will benefit the provinces, attracting people to go home to their birthplaces to find jobs, start businesses, and (hopefully) decongest Metro Manila.

2. More Open to Foreign Direct Investments

The new administration promises to make it easier for foreign investments to come in. Duterte also wants to create more Economic Zones in Mindanao. If done, there is a chance that the control of our economy by a handful of families (oligopoly) will be broken, and our economy will expand.

3.     Remove Red Tape in Government Agencies

Big businesses who've built their presence in Davao report of their hassle-free, bribery-free experience with government agencies there. Transactions that would otherwise take many months to file in other cities would only take 72 hours in Duterte's city. The big question is if Duterte can replicate this "business friendly" scenario all over the country. Only time can tell.
4.     Increase Tourism

Last year, Amazing Thailand attracted 25 million tourists. "It's More Fun in the Philippines"? Five million. Why do we only get a fraction of the tourists they get? Doesn't the Philippines have the same glorious beaches and amazing islands? We believe that if enough infrastructure is built and peace is established, we will see an increase in tourism in the coming years—boosting the economy of the provinces.

Will this rosy picture happen?

As always, it boils down to the political will to execute.

Resolution?

Keep investing your small amount each month!

May your dreams come true,

Bo Sanchez