The expat market has grown phenomenally over the last few years and indeed expats are now highly visible in each and every corner of the world. We therefore thought it would be interesting to see the various investment patterns of expats around the world to see their thoughts and their concerns for the future. We will now take a look at the Philippines expat market which has attracted a significant number of people over the years.
While much of the information may come as no surprise we think that the investment trends within the Philippines expat community will show the very different attitudes around the world.
It may well surprise many people to learn that the Philippines economy is perhaps as strong today as it ever has been and indeed earlier this month the rating on Philippines sovereign debt was increased by the credit rating agency Standard and Poor’s. Even though the credit rating now stands at BB+, which is one level below the investment grade, there are high hopes of further improvements in the short, medium and longer term. Indeed the improvement in the credit rating will impact upon the cost of borrowing for the country which should hopefully feed into further investment and economic growth.
Even though the Philippine government has taken a somewhat different approach to currency strength, restricting the inflow of foreign funds into the country, this has proved to be very successful. There has also been a massive increase in exports from the Philippines and on the whole the economy is showing signs of significant strength even in these most difficult of worldwide economic climates. Against this background it is not difficult to see why more and more expats are looking towards the Philippines for their future and a good return on their investments.
Property (54.55% of the vote)
Historically where there has been economic strength there has been significant interest in the property market and the ongoing strength in the Philippine economy is no different. A massive 54.55% of those who took part in our online poll at the expatforum.com confirmed that they were looking to invest in property in the Philippines as their number one asset allocation. However, as we touched on above, the Philippine government is very reluctant to allow a free flow of overseas investment into the country because of the impact this will have on the currency and specific asset classes. It will therefore be interesting to see how this particular development progresses because property has been and continues to be one of the major investment assets around the world.
For many years the Philippines were seen as one of the poorer cousins of the Asian market and indeed many investors were reluctant to invest significant amounts of money. However, while the number of expats in the region continues to grow, investment opportunities continue to arise and the government seems very keen to control the situation, it is difficult to argue against the potential for growth in the short, medium and longer term. Many investors will continue to keep their eye on the Philippines property market especially when it is showing this kind of strength against a worldwide economic downturn.
Stocks and shares (36.36%)
Despite the fact that we have seen a significant reduction in worldwide stock markets over the last few years, due to credit crunch part one and the potential entry into credit crunch part two, there is still significant demand for stocks and shares in the Philippines. This is a perfect reflection of the ongoing economic turnaround within the Philippines which was for many years well below the investment grade required for the majority of investors. Indeed the recent increase in the credit rating of the country will not only allow the government to borrow funds on better terms but will also impact the overall banking community and the business arena.
As a consequence, it is perhaps no surprise to learn that there is still significant demand for stocks and shares amongst expats living in the Philippines. Expats in the region are experiencing an improvement in the economy, experiencing an improvement in their way of life and seem very able to see the potential for future long-term growth. It will be interesting to keep a track on the Philippine stock market in the months and years ahead.
While antiques fared in third place in our online poll, attracting just 9.09% of the vote, it is interesting to see that there appears to be some interest in this particular area even though the economy itself and the stock market remain fairly strong. Whether or not this is expats from all areas of the world showing a keen interest in local antiques and local culture is a matter for debate but the antique market does tend to fare better when the worldwide economy and worldwide stock markets are struggling.
If you’re looking towards an investment in the antiques market then you should probably take professional advice because very often your funds may well be tied up for some considerable time. The antiques market is not as liquid as the stock market and indeed it can also be hit by trends and fashions which can often leave some goods on the sidelines unwanted. As the Philippines economy continues to grow it will be interesting to see whether overseas interest in local antiques improves and indeed whether we see an increase in prices.
There are few people who would have put the antiques market ahead of the art market when looking at investment trends amongst expats in the Philippines. The art market is worth an estimated US$110 billion per annum and around 30% of this investment interest seems to emanate from China. Therefore, it would seem sensible to assume there would have been significant interest from the Philippines but as yet this has not materialised.
Each and every week seems to bring some good news from the worldwide art market and indeed it has become a potential investment arena for many new investors looking for different asset classes. We may well see an increase in art investment across the Philippines as the economy continues to improve but then again if the economy is growing, the property market is growing and the stock market is rising then why look elsewhere for “alternative safe haven” investments?
For many people the art market is seen as something to consider if the worldwide economy is under pressure and worldwide stock markets are struggling while for others it is something of a labour of love. The art market, together with the antiques market, is not necessarily for everyone.
Precious metals (0%)
The precious metals market has on the whole fared very well in our online poll although for some reason there seems to be less investment interest amongst Philippine expats. Whether again this is because of an improving stock market, a buoyant property market and an economy which continues to strengthen is a matter for debate because for many people precious metals are seen as something of a “safe haven” investment. However, on the other hand you could argue that if the Philippine economy is growing then there should be additional demand for precious metals at some stage?
It may well be that investors see the stock market and the property market as more traditional investment arenas and are unwilling to take any additional risks in the precious metals market. A survey recently conducted by Barclays International Bank showed how “treasure” investments, such as precious metals, antiques and art, have experienced a surge in popularity of late. Historically the precious metals market has benefited from a worldwide economic downturn but on the other hand as and when the worldwide economy improves many experts expect the price of some precious metals to fall. When you bear in mind the price of gold has increased from around $300 an ounce back in 2000 to around $1600 an ounce today, peaking at around $1800 an ounce during the depths of the economic downturn, this perfectly reflects this very prominent pattern.
Fine wine (0%)
Fine wine is yet another area of the investment arena which does tend to benefit from a worldwide economic downturn although for some reason this has not materialised in the Philippines. Very often local fine wine markets are held in their own local “cocoon” and do not see the wider picture when in reality investors from Asia, Russia, South America, Europe and India are very active within this particular field. In many ways it is the rarity factor of these fine wines which dictates their value and in many ways it is this rarity which allows them to maintain and often increase their value going forward.
There have been significant changes within the worldwide fine wines market over the years and indeed it is now more heavily regulated than ever before. We have seen a number of scams and fraudsters operating in this particular field although thankfully this extra regulatory power has reduced instances of fraudulent activity. The fine wines market may seem very attractive on the surface but again it is another area of the investment arena which does require professional financial advice before you commit any funds.
Classic cars 0%)
Yet again it is a little disappointing to see no interest in the classic cars market which has been making something of a comeback over the last few years. These are investment assets which tend to benefit from their “rarity value” and enthusiasts are now willing and able to pay big bucks for some of the classic cars of years gone by. There are a number of prominent classic car markets around the globe taking in everything from very early cars to the latest sports cars and everything else in between. Some of these vehicles can change hands for millions and millions of dollars and bidding can often become very frenzied due to excessive demand for specific vehicles.
Like so many of the more peripheral investment markets, such as fine wines, art, etc an investment in the classic cars arena may well turn out to be very profitable but your funds may well be tied up for some time. This is not a liquid market such as stock markets and it is not an area which you should consider without any experience or before taking professional financial advice. These are specialist arenas and many investors in the past, looking for a quick buck, have had their fingers seriously burned.
Risk reward ratio
If you speak to any professional investor they will very quickly turn their sights on the risk reward ratio of any specific asset or any specific asset class. This is the cold hard ratio which dictates the potential rewards against the potential risks of a specific investment. In simple terms there are two specific risk factors to take into consideration which include systematic risk, the overall risk of investing in any market, and specific risk which is the individual risk attached to an individual asset. While these are not always simple to calculate and estimate they should be taken into consideration when looking at any potential investment in any investment arena.
A perfect example of how the risk reward ratio works was experienced by those operating in the money markets during credit crunch part one when the US mortgage market collapsed and liquidity in many markets around the world dramatically fell. While many lenders disappeared from the scene, those who remained able and willing to lend money to banks and other financial institutions very quickly decided that because of the perceived increased risk of default by third parties they required a larger interest payment on their investment. This very quickly saw the cost of borrowing around the world increase dramatically which had a massive knock-on effect to the worldwide business arena and the worldwide economy.
Conversely it was also very interesting to see that when Chancellor Merkel decided to soften her stance towards banking bailouts across Europe there was a reduction in sovereign interest rates for Spanish debt and Italian debt. The proposed programme would see European leaders investing directly into local banking markets as opposed to investing through the local government because this would have increased government debt. Whether or not this plan actually comes to fruition or not remains to be seen.
The worldwide economy has been struggling for some time now and indeed many countries within Europe are now experiencing the second leg of a double dip recession. It is also noticeable that many non-European countries are now joining the various bailout funds and bailout operations in place because they very quickly realised they also have a vested interest in the European economy improving and Europe remaining intact.
A number of experts had expressed their concerns about a wider European market and wider European integration some time ago and indeed the introduction of the euro was very controversial to say the least. A number of these doomsday scenarios are coming to fruition although it is still in the balance as to whether the euro will survive in its current form and indeed whether the Eurozone will survive. Despite the fact that for example Australia and South America have economies which are performing very well, alongside the likes of China and India, the European situation is having a major drag on the global economy. Therefore until the European debt situation is resolved it is unlikely that we will see any significant worldwide economic growth.
The money markets are also experiencing liquidity issues on a sporadic basis as the various updates from European leaders have tended to move between extremely positive and extremely negative – hence the volatility in money market liquidity. Many of the world’s central banks have been pouring significant funding into the money markets to avoid a seizure such as the one we saw back in 2008 which had a monumental impact upon worldwide economic growth.
It is very interesting to see there is very little interest in any investment classes other than property and stocks and shares amongst expats in the Philippines. However, when you bear in mind the ongoing economic growth within the country it is perhaps a little more understanding that investors are happy to go for the traditional investment markets. Areas such as antiques, fine wines, art, classic cars and precious metals tend to be more prominent during difficult economic times but if the local economy in the Philippines is performing well and the stock market is attracting interest then why look for so-called safe havens?
Whether or not the Philippine economy can continue its upward path only time will tell because the worldwide economy is still struggling and there are still issues within Europe. Even though the likes of China are still showing significant growth in economic terms this has been somewhat unpredictable of late due to worldwide issues. The reality is that unless the overall worldwide economy stabilises and then moves into positive growth it is difficult to see how any one individual economy can continue to confound critics on a long-term basis.
Investment in stocks and shares and the property market within the Philippines could probably be described as at a very early stage of the economic recovery and in principle there could be further growth to come. However, how long can the country keep battling back the waves of economic turmoil battering all areas of the world?