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Philippine appetite for saving, investment growing

SINGAPORE -- Japanese financial institutions in the Philippines are stepping up efforts to capitalize on rising incomes and a trend toward saving and investment in a society known for its spending habits.

The number of accounts newly opened for securities investment is sharply increasing as the country's middle class expands and an appetite for investment grows. With trends toward saving money gathering steam as well, the ratio of households with savings has now topped 30% of all households.

In Makati, the Philippines' financial hub in the Metro Manila region, online brokerage house BDO Nomura Securities has begun operations in one of the many high-rise buildings in the premier district. Founded jointly by Nomura Holdings and BDO Unibank, the biggest bank in the Philippines, BDO Nomura provides securities services via the internet for individual investors.

Going with the flow

The joint venture targets online services because the number of accounts for securities investment using the internet is quickly increasing.

The number totaled 237,000 in 2015, up 36% from the previous year, and accounted for 33% of all 713,000 securities investment accounts, according to the Philippine Stock Exchange. The pace of growth was faster than 27% in 2014.

"Of individual investors who open new securities investment accounts, 90% opt for online," said Koichi Katakawa, president of BDO Nomura.

Koichi Katakawa, president of BDO Nomura Securities, sees opportunities in getting young Filipinos to invest their money rather than spend it.

Filipinos who newly open securities accounts are often in the 18 to 44 age bracket. The Philippines is a country of young people, with the average age of its population under 25. As many people use smartphones for information gathering and shopping on a daily basis, online financial transactions are widely accepted.

"We will attract young people who are eager to earn a stable income along with economic growth," Katakawa said.

The Philippines is one of the biggest consumption-oriented countries in Asia. With personal spending accounting for 70% of the nation's gross domestic product, its people are not known for investment and saving. Many low-income people live on a day-to-day basis.

But thanks to the economy's growth, the middle class has expanded, and investment of income in excess of living costs is becoming an option.

Increasing money transfers to families from Filipinos working overseas as migrant workers have also stimulated interest in investment. In 2015, they sent the equivalent of around 3 trillion yen ($28.71 billion), accounting for 10% of the nation's GDP.

Annual money transfers from abroad have soared about 2.5 times over the past decade due, in part, to an increase in Filipinos having well-paying, professional jobs overseas.

Money received from abroad is now spent not only to cover living expenses but also on recreation and luxury merchandise, said a manager at a Japanese bank's local subsidiary. Some of those funds are being invested as well. A trend is emerging among people to acquire homes and fixed assets with money transferred from abroad, said Victor Felix, an analyst at Philippine brokerage house AB Capital Securities.

The tendency to save is also increasing sharply. Households with savings accounted for an estimated 33% of all households in the July-September period, topping 30% for the fourth consecutive quarter in a row, according to Bangko Sentral ng Pilipinas, the country's central bank. The ratio was 29% in the July-September quarter of 2015 and hovered at the 20% level throughout 2013.

Of the households with savings, more than 60% have bank deposits. While a large number of households have hoarded money, those having accounts at financial institutions, which may be considered reserve investors, are increasing as rising income has raised the awareness of savings.

Foreign financial institutions are actively setting up outlets in the Philippines to attract individual clients. For example, Bank of Tokyo-Mitsubishi UFJ concluded a capital tie-up with local commercial bank Security Bank earlier this year.

Stock market roller coaster

Financial markets in the Philippines have a considerable number of problems to address before giving momentum to recent investment and saving trends among Filipinos.

For example, only about 50 stocks can be investment destinations in view of Philippine stocks' liquidity and market capitalization, said an executive at an investment company that has an outlet in the country. The total market capitalization of all stocks listed on the Philippine Stock Exchange was $265 billion as of September, according to the World Federation of Exchanges, and the value is only one-nineteenth that of the Japan Exchange Group.

Given the small scale of the local stock market, prices often fluctuate widely, posing large risks to individual investors. In particular, extreme words by President Rodrigo Duterte, who took office at the end of June, tend to cause erratic variations in stock prices.

The Philippine Stock Exchange Composite Index, for example, rose 16% to a high in July from May when Duterte won the presidential election. It then plummeted some 10% by mid-October.

Stock price falls in the past few months represent appropriate corrections because they rose excessively in July in comparison with corporate earnings, said John Fajardo, head of equity at DBP-Daiwa Capital Markets Philippines. The outlook for long-term increases remains unchanged, he added.

Nevertheless, the Philippine stock market needs to create an environment that is friendly to investors, such as an increase in the number of listed stocks to raise liquidity, if it wishes to attract individual investors who are often risk-averse.

Major political and economic changes are occurring in the Philippines, and the country is increasingly drawing attention from the rest of the world in infrastructure and other areas. To spur further economic growth, the country needs a financial system in which money circulates smoothly.

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