Investors ‘cautiously optimistic’ on Philippines amid headwinds

By Luisa Maria Jacinta C. Jocson, Reporter

INVESTORS are “cautiously optimistic” on the Philippines amid geopolitical and macroeconomic headwinds, Bank of America’s (BofA) top executive in the Philippines said.

“We’ve seen a lot of investors looking at the Philippines in particular, because we know Southeast Asia has been a very interesting market,” Bank of America Country Executive for the Philippines Vincent Valdepeñas told BusinessWorld in an interview.

“When we talk to companies, they’re cautiously optimistic. There are still a lot of geopolitical and macroheadwinds,” he added, citing ongoing conflicts and natural calamities that could stoke inflationary pressures.

Mr. Valdepeñas said many foreign investors still see the Philippines as a “very strong market, given its demographics.” The economy’s resilient growth is one bright spot driving investor sentiment, he added.

In 2023, Philippine gross domestic product (GDP) growth slowed to 5.5% from 7.6% in the previous year. The Philippines was still among the top performers in the region.

“On the economy side, we do have the momentum now. We just don’t want any shocks that will stop this strong, consumer-driven growth,” he added.

Economic managers are targeting 6-7% GDP growth this year.

Mr. Valdepeñas said the Philippines is seeing interest mainly from investors in the US, Europe, Japan and China.

“The key is that the government is open now for investments and we just have to keep on monetizing it,” he said.

He cited the need to ramp up government spending, particularly on infrastructure such as tollways, airports and trains.

“When we execute that, that will really have a multiplier effect on the economy. These are the basics for us to be able to leapfrog and push the economy to the next level.”

Infrastructure is one of the Marcos administration’s priority investment areas. It plans to allocate 5-6% of GDP annually for infrastructure spending. The government’s flagship infrastructure program currently has 185 “high-impact” projects worth P9.14 trillion.

Mr. Valdepeñas said the Philippines should focus on improving investments in manufacturing.

The government can also attract more investors by streamlining processes and improving the ease of doing business, he said.

“We just have to implement it to make it easier for foreigners to invest in the Philippines. It’s really marketing the Philippines and telling them what the opportunities are,” Mr. Valdepeñas said.

MARKET OUTLOOK
Meanwhile, Mr. Valdepeñas said he is optimistic on the further opening of the country’s capital markets.

“We do see that the equity markets will probably be more active in the second half when we see rate cuts and see the valuations better. It’s much more active now compared to the past two years,” he said.

Strong demand is also seen from global investors, Mr. Valdepeñas said, highlighting the recent Metropolitan Bank & Trust Co. (Metrobank) dual-tranche issuance.

In late February, Metrobank raised $1 billion through an offering of five- and 10-year dollar-denominated senior unsecured notes. This was double the initial target of $500 million as the offer was more than 11 times oversubscribed. Orders from global investors reached $5.6 billion.

BofA Securities and UBS were the joint global coordinators and bookrunners for the issuance, with Mitsubishi UFJ Financial Group and First Metro Investment Corp. mandated as joint bookrunners.

“As you can see, there’s a lot of issuers now starting to come in as they can see there’s interest, especially in the Philippines on the investor side,” Mr. Valdepeñas said.

“The (dollar-denominated) debt side is very, very open and investors are really looking to put their money to work, especially on the fixed-income side.”

Mr. Valdepeñas noted the government’s push to broaden the capital markets and increase liquidity.

“Foreign investors want to have really active and liquid capital markets. The problem is if your market is not as liquid, foreign investors will also have a hard time exiting or even buying. If you compare it to our Southeast Asian neighbors, it’s very liquid there,” he said.

“We need more issuers that have a bigger float or issuers that are more public. That will help the foreign investors to come into both the equity and in the local bonds market.”

Both the central bank and Finance department have signaled the need to broaden the country’s capital markets.

The Philippines can look at best practices from Singapore, Mr. Valdepeñas said.

“If we can replicate the liquidity and policies of a market like Singapore, then that’s good… The goal is to fix the liquidity, to get more companies to issue in the Philippines. So, we get more money coming in, cause the problem is the free float is small and you can’t trade. If somebody wants to buy, it’s hard to buy.”

SLOW TOURISM RECOVERY
Meanwhile, BofA Global Research in a separate report said that the Philippines’ tourism recovery has been “hurt” by the slow return of Chinese travelers.

“The pace of international tourism recovery has been uneven across the Asia region with Japan and Vietnam leading the way but China, Hong Kong and the Philippines lagging,” it said in a commentary.

BofA Global Research noted that tourist arrivals are still below pre-COVID levels in the Philippines. Chinese tourists have only resumed overseas travel last year.

“Recovery has been slower for places that depend heavily on Chinese tourists, such as the Philippines and Hong Kong. Specifically, the latest data show Chinese arrivals are only tracking at 20-30% of pre-COVID levels in the Philippines, below trends elsewhere in the region,” it added.

Latest data from the Tourism department showed that the Philippines logged 5.45 million international visitors in 2023, surpassing its 4.8 million target.

South Korea was the top source of foreign arrivals, accounting for 1.44 million tourists or 26.41% of the total. This was followed by the US (16.57%), Japan (5.61%), Australia (4.89%), and China (4.84 %).

“On the other hand, the return of Chinese travelers might be a gradual process. The good news is that according to the Civil Aviation Administration of China, scheduled international flights in China are expected to return to 85% of 2019’s level in the next six months, higher than the current recovery ratio of sub-70%. But the complication is that flight capacity recovery likely won’t be evenly distributed across countries,” BofA added.