Experts say OFWs not ready for market
by WILLIAM ALZONA and ISAGANI DE LA PAZ

QUEZON CITY--TONY Ranque's heart beats faster every time someone from a bank pops up a message on his mobile phone.
Like a lover on a tryst, Ranque punches the keypad where a set of numbers sways his decision whether or not to log on to the Internet, access his account, and buy or sell stocks he bought from three or four publicly-listed firms in the country's exchange.
He's in Bohol, 630 kilometers southeast of Manila, where his stocks, bought from savings of a 20-year work in Saudi Arabia, are one of millions traded at the Philippine Stock Exchange (PSE).

The former overseas Filipino worker, however market savvy he appears, says it took him more than a year after returning from Riyadh before engaging in the market for securities.

He advises against OFWs from following his lead.

"I'm a poor example of a day trader," Ranque told the OFW Journalism Consortium over cups of cappuccino when he was vacationing in Manila.

"The best ones are those who studied the market longer than I did. It would take double my courage and a high level of financial literacy," he added.

Two experts, one of them a former OFW also in Saudi Arabia, agree with Ranque.

"They [OFWs] are not yet ready for these kinds of [financial] instruments," Jonathan Ravelas, market strategist at Banco de Oro Universal Bank, told the OFW Journalism Consortium.

"If [they] are not familiar with the product, it will be too difficult [for OFWs] to invest," former banker Julian Roseus added in a separate interview.

For Ravelas and Roseus, however, the culprit is the market itself: the lack of products attractive for OFWs with high disposable incomes as well as the lack of access to market data.

It took Roseus two decades to nurse his stocks in the Philippine National Bank, Petron Corp., and Philippine Airlines.
It would take Ranque, seven years younger, 18 years to reach Roseus's stature.

Late bloomer
ROSEUS credited his savvy for investing mainly because he was a banker, and as such, he can wiggle his way in the market.

"I was lucky I'm in the industry. But for other people, I don't think they can access it because there's no information dissemination," he said.

Some 4,800 miles away from Manila, Roseus managed to buy shares of several companies because he was constantly in touch with friends and family members who gave him investment leads.

There was no Internet at that time so I had to rely on information from here, he said.

Back home, when the Retail Treasury Bonds were first offered a few years ago by the Bureau of the Treasury, I managed to get some of it with 14-percent return upon maturity, Roseus claims.

Roseus said aside from being tipped by a friend working in a bank on the RTBs, its issuance was also usually published in newspapers.

"It was just a tombstone advertisement. Only a trained eye could see it. If you are not used to reading ads such as that, you'll probably miss the opportunity."

Roseus thinks some banks are not advertising vigorously and, hence, not attracting OFWs for investment.

Financial analysts, however, think OFWs have an aversion to risks that's why they're avoiding the market. Others point to Filipinos' weak savings rate and capacity for spending for investments.

The case for OFWs, however, is different since they have relatively higher salary and disposable income than most working employees in the Philippines.

An Asian Development Bank study has cited OFWs could save and invest their money and still live comfortably.
If the products are there, Roseus said.

Roseus said part of the reason for low OFW participation in the market was that most of the products being offered to them were all for consumption—from insurance policies to house and lot to appliances to automobiles.

"But for investment outlets, almost all of them are (marketed) through word of mouth," he said, adding that there aren't enough effort exerted by companies to entice OFWs towards these kinds of instruments.

Ravelas, whose bank owns the chain of Shoemart Malls in the country, said that such instruments, nonetheless, are too risky for OFWs.

He added that OFWs should stick to fix-yielding savings accounts and time deposits.

Gains, pains
HOWEVER, even savings accounts remain unattractive, with a two-percent annual yield while time deposits at four-percent annual interest.

This is lower compared with the returns, say, of the Unit Investment Trust Fund, which promises gains by as much as 20 percent a year, or ten times the yield of the savings account. Buying bonds or debt paper floated by either the government or a private entity, can yield not as much as UITF but definitely higher than those of savings account.

But due to the risks –loss of money– attached to these instruments, financial analysts, brokers, and other experts that the OFW Journalism Consortium talked to for this story failed to recommend a single investment product OFWs should sink their teeth on.
"It all depends on the risk appetite of the investor," an executive from the Hong Kong Shanghai Banking Corp. said.

Indeed, most instruments follow a rule of thumb in investing: low yield begets low risk; a high yield means high risk.

Even savings accounts or fixed income instruments carry the risk of having a bank or firm folding up for various reasons.

A comforting thought for this is that savings are protected by the Philippine Deposit Insurance Corp. up to P250,000.

Likewise, savings accounts, unlike bonds, don't follow so many benchmarks and are protected from speculative attacks.

For instance, when interest rates go down, bond prices go up and vice versa.

If the UITF follows the same market trend, the rates for a time may hit a negative mark and the principal amount could be slashed along the way or, worse, wiped out.

Hence, even Nestor Espenilla, Bangko Sentral ng Pilipinas deputy governor, cautioned that banks should educate its clients on the pitfalls of UITF products.

"They should tell their clients that a UITF is not a deposit product, and as such it is not insured [with the PDIC]," Espenilla said.
"It is still subject to market risks; they may decline along the way."

The UITF will replace the common trust fund, which would be phased out by October this year.

UITF managers, mostly banks, accept investments for as low as P50,000, unlike the volume in the stock market and bonds that go at a minimum of P500,000.

Basically, the UITF is money pooled by banks. Acting as financial managers, these banks invest the money on various instruments such as the stock market and government-issued bonds.

Unlike the CTF, the UITF is "marked to market" and, as such, the banks cannot assure its returns. Likewise, past performance of the investment may not necessarily reflect future trends.

So far, the UITF has posted double-digit rates, or between 14 percent and 16 percent, as a result of the surge of both the stock market and the peso's slight strengthening rate against the US dollar.

Prior to negative reports on the UITF, Roseus recommended it as investment for OFWs, citing higher returns as reason.

Literacy
AT the heart of moves to attract investments from the billions of dollars of OFW remittances lies financial literacy, Roseus said.
Financial literacy, Roseus said, is the fundamental step even before an OFW starts spending hard-earned money, much less begin investing.

While consumption from OFW remittances drives the Philippine economy, this has led to dependence to the migrant worker of the Filipino family left behind, according to several studies.

This dependence has resulted to decreasing domestic productivity that even the World Bank warned the Philippines of relying too much on remittances to spur economic activity.

What if migrant workers' families hold back on spending remittances as Dennis Arroyo cited occurred late last year?

"There were anecdotal evidences that families of OFW did not spend as much during the Christmas holidays," said the director of the National Planning and Policy Staff of the National Economic Development Authority.

Hence, Arroyo urges the business sector to devise ways to capture the huge money that was kept in the banks by the families of OFWs who held back spending late last year.

"Businessmen should know how to tap that huge money," Arroyo said. He cited one move could come from the PSE that, he said, should start offering stock to the OFWs or their families here.

It only takes a minimum of P25,000 (US$472 at P53=US$1) in opening an account to trade in the stock market.

Easier said than done, especially when financial market players are not convinced OFWs are "educated enough" to trade in the money market where the stakes are high.

Ravelas said OFWs should instead put their money to real estate, or to some fixed-income financial instruments rather than toy with the idea of trading their hard-earned money to equities or foreign exchange markets.

"I think they (OFWs) should be educated well before they trade their money," he added.

Roseus admits he used his money earned while working in Saudi Arabia to buy a house and lot.

Real estate, in itself, can be considered as an investment as its price does not fluctuate, he explained, adding that prices at the equities market follow many patterns that boggle the mind even of financial analysts.

Analysts themselves cannot predict whether it is best to buy, sell, or hold on to a specific stock, Roseus said.

He recommends that OFWs neither engage in stock trading nor invest in other derivative products such as futures contracts, forward contracts, options, and swaps.

"Since they won't be [here] to manage it [and act decisively] such as withdrawing the money on time when uncertainty is at hand," the risks are higher, according to Roseus.

A notch more difficult to predict are derivatives products, Roseus added, since the prices of these investment products rely on –or derive from, hence the term– one or more underlying assets, such as stocks, bonds, commodities, currencies, and interest rates.

Relatively "safer" but difficult to buy by an ordinary investor are bonds, he added, since only banks would know when these will be offered.

They are usually the ones allowed to buy and sell these instruments, he added.

Jose Vistan Jr., senior analyst of AB Capital Securities, recommends more public education by the PSE to attract OFWs and their families into the stock and equities markets.

Or study and begin sharpening the mind, Ranque said, especially of their children.

"The cycle has to be broken."

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium
This article is free, but to publish, broadcast, rewrite, or redistribute this, please write or email the OFW Journalism Consortium editor@ofwjournalism.net for permission.