The Philippines has for years been seen as something of a backwater of the South Asian region, Failing to participate in the Asian miracle, with a reputation for graft and corruption. Up until the election of Benigno ?Nonoy? Aquino in 2010 , the previous cast of characters who served did little to change this. In the last two years of Nonoy?s tenure, the world appears to have started to take notice of some significant changes in this country. Not only has economic growth exceeded many of its neighbouring countries, in a region which includes many of the fastest growing countries in the world, but inflation, a long term scourge of previous governments has been tamed, and the new President, has set about bringing to task the ancient regime in a concerted effort to stamp out corruption.

With a population of more than 92 million people, the Philippines is the?seventh most populated Asian country?and the?12th most populated country?in the world. With one of the highest literacy rates (94%), and English as the lingua franca of the business community, growth has come in recent years from a number of key areas. Tourism and Business Process Outsourcing are two of the most important components of the economy now, and are replacing agriculture as the both big employers and important constituents of growth.

Many international investors are beginning to recognise that the Philippines has some of the most profitable and efficiently managed conglomerates in Asia.? Often involved in multiple stratas of society. Firms like Corporacion Ayala are well respected. ?With a population of close to 100 million people, the consumer sector has been one of the main drivers of the stock market strength of the past couple of years, which continues unabated.

The mineral and natural resources endowment is also considerable. The country is estimated to have the second-largest gold deposits after South Africa and one of the largest copper deposits in the world.It is also rich in nickel, chromite, and zinc. Despite this, poor management, high population density, and environmental consciousness have resulted in these mineral resources remaining largely untapped.?Geothermal energy, however, is another product of volcanic activity that the country has harnessed more successfully. The Philippines is the world’s second-biggest geothermal producer behind the?United States, with 18% of the country’s electricity needs being met by geothermal power.

The one Achilles heel of the current boom time and stock market exuberance in the short term could well be the strength of the peso. Recent lessons from India and Brazil have shown us that a strong currency can be the undoing of the economy, especially when combined with the faintest whiff of economic back pedalling. Robert Vegara,?President and General Manager of the largest state pension fund,?Government Service Insurance System, points out however, that contrary to being a weakness, the stronger currency is helpful for a nation that is going through an investment cycle, importing the capital goods needed for this generational transformation. Given the continuing importance of international remittances from the vast numbers of Filipinos that work oversees, the currency?s strength cannot be underestimated.

The disparity between rich and poor is also still very noticeable as soon as one leaves the smart shops and bars of Makati City. How many of the average Pinoys are benefitting from the new found wealth is surely questionable. However, there is something of a repatriation of talent driving the economy, as Filipinos that have held senior jobs oversees return to the country to buy land and participate in the bonanza.

Anecdotally, the success of friends in the fast moving consumer goods space in central Philippines, where increased sales of tooth paste and shampoo is all too evident, must be a strong signal that the consumer story is alive and well and has some way to run, even if the multiples of the average stock exchange listed company look rather demanding.

Longer term, the Philippine economy looks like it has truly turned the?corner. And whilst the market is up over 15% through the end of February,?and with a trailing PE of over 20 times, Goldman Sachs estimates that by the?year 2050, it will be the 14th largest economy in the world. HSBC also?projects the Philippine economy to become the 16th largest economy in the?world, 5th largest economy in Asia and the largest economy in the South East?Asian region by 2050.?Nevertheless, short term we look for a bit of consolidation as the market lets off some steam. The second half of the year may offer attract buying?opportunities for international investors who are late to the game.

Sources: Wikipedia