When it comes to investment, there are many avenues to go down, and many supporters and critics of each one.
Some hold the view that investment is a valuable use of time and money and certain investments can pay in greater dividends than one could have hoped for – indeed, there are many examples of where this has been exactly the case.
Others believe that investment is difficult to predict. Regardless, the rise of investment has been clear, especially in markets overseas. The Philippines is one such up and coming investment opportunity that is seeing an increase in foreign investment.
But, recently, the Australia and New Zealand Banking Group Ltd announced that they would be raising the overnight borrowing rate at the Bangko Sentral ng Pilipinas by another 25 points, leaving it at 3.75, in order to combat inflation.
What does this mean for investment, for the BSP, and more importantly, for investing in the Philippines market?
What is the BSP?
The Bangko Sentral ng Pilipinas is the central bank that serves the Philippines and has done so since its inception in 1993. Unlike banks that serve the UK and US, the BSP acts slightly differently and has an expanded mandate of duties and responsibilities.
The BSP is responsible for liquidity management in order to maintain financial stability and maintain prices – and as such, is a lender of last resort for other banks and institutions looking to borrow.
The bank also deals with what is legal tender in the Philippines and supervises the financial regulations for the area. But the bank also deals with foreign exchange and, as is necessary in order to preserve the Philippine peso, the bank maintains foreign currency reserves to meet the demand.
The bank determines the exchange rate and is governed by the market-oriented foreign exchange rate policy. The bank's duties see it work as a central lender that helps regulate the financial institutions in the area.
But, the bank also helps those looking to invest from afar by offering services that those with a savvy investing head are able to tap into.
BSP and Foreign Exchange
Indeed, in recent years, investment has moved towards foreign exchange – or forex – which involves making microtransactions in order to take advantage of the fluctuating currencies and economic stability around the world to make interest on money exchanged.
For those looking to invest in the Philippines and enter the world of foreign exchange, understanding the relationship between the BSP and forex is critical in establishing how and what can be traded and when the best deals can be cut.
So, the hiking of the interest rate again will have a knock-on effect on the forex traders from around the world. By increasing interest rates, the Philippines becomes a more attractive prospect for foreign investors, which in turn will increase the demand for and value of the Philippine peso.
So by increasing the interest rate, BSP is ensuring the Philippines has a better chance of succeeding in the long term. The overnight rate that looks set to change again in the Philippines offers the most lucrative aspect for foreign traders as the guarantee of a better deal is all but given.
For those looking to get into forex trading, finding a currency that has a better rate such as the Philippine peso is a good way to start.
Is the Philippines Good for Investment?
Most serious investors should be flocking to the Philippines to begin their investment there. With such dedication to safe and secure forex and the interest rates in favour of the investor, what possible barriers could there be?
By researching the various risk tolerances to the investment opportunities, and using market research to increase your understanding of the PESTLE (Political, Economic, Social, Technological, Legal, Ethical/Environmental) factors that could eventually lead to a default, the issues that crop up when considering investing can be mitigated against.
Diversifying loans is a key strategy in order to ensure that if one investment doesn’t pay off, the others will keep you from defaulting yourself. Ultimately, good investment comes from feeling the market and making smart informed decisions based on this information.
Reinvestment is crucial in order to offer a better chance of sustained success and to keep the investor from growing complacent and making a mistake.
What Personal Investment Opportunities are There?
Insurance is a strong investment opportunity in the Philippines – as only 47% of Filipino people have life insurance compared to 59% of Americans.
Investment needn’t be such a complex prospect – smaller investments can be made through various forms of peer-to-peer lending. Sites such as LendingClub, UpStart, and BitBond offer opportunities to give money in smaller doses and be repaid later with interest.
These investments are best for lower amounts, shorter timeframes, and smaller payback – or quick wins. Another primary means of investing is through the stock market.
In the Philippines, the market is monitored and stocks are bought through their own exchange forum – the Philippine Stock Exchange (PSEi). Buying low and selling high might not be the only advice necessary as the market can turn in a more volatile way than the Western markets.
Smaller, private businesses off the stock market are also a worthy source of investment, especially in new trends and those which look to see greater expansion due to the investment.
Some Investments are Riskier Than Others
Alternatively, a more assured form of investing could be through a mutual fund. The SEC monitors many mutual funds in the Philippines, which combine the money of several investors to make a larger investment than just one or two couldn’t manage – while still giving dividends of a large investment.
These range from short-term money market funds to longer-term bond funds. Risk assessment is critical for mutual funds, as with any investment, but perhaps even more here as while it may seem like the risks are low due to your lower investment, they are the same as a larger investment due to the money other people have added into the fund.
Foreclosed homes also offer an investment opportunity – but would suit someone who already has a portfolio and can make the investment and still manage. The prospect of foreclosure investments may repel some who aren’t prepared for the fees and taxes that may be involved, especially in investing in property overseas.
Overall, the Philippines offers plenty of investment opportunities, and the BSP is making it even easier for investors to do so.
The BSP made the conscious decision to increase the interest rate and likely did so to mitigate against persistent macro imbalances, higher inflation, and a larger trade deficit. But the move also worked to offer an attractive position for traders and investors across the board.
The prospect of investing in the Philippines is attractive and could result in some lucrative returns, as long as the investor maintains a clear head and continues to monitor the economic stability present. Growth in the Philippines is expected to remain at 6.8% in 2018 – and the bank suggest that interest rates could increase even further in November. The 50 basis point increase of the year so far shows that the bank and the country are eager to maintain their own financial security, while offering an enticing prospect for international trade.