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Wednesday, October 10, 2012

Philippines in ‘demographic sweet spot,’ says CLSA study


The Philippines is sitting on a “demographic sweet spot” with its crop of young urban professionals seen accounting for half of the country’s discretionary spending and at least a fifth of the country’s economic output by 2020, based on a research by CLSA Asia-Pacific.
“With a bright outlook for the domestic economy, we project this demographic’s consumption growth to outpace the rest of the Philippines by 10 percentage points in the next decade. Sustained growth in the BPO [business process outsourcing] space and the up- and -coming gaming and tourism sectors will propel this trend, especially when yuppies start buying houses and cars,” CLSA said in a Philippine consumer report issued last month.
The report, entitled “Pinoy Yuppies: New Spending Class Steps Forward” authored by CLSA analysts Jacqui Evangelista and Alejandro Molina, said this crop of well-educated 25- to 34-year-olds currently account for 3 percent of the total population and 7 percent of the country’s total workforce.
But while making up just 3 percent of the population, the report noted that this segment already comprised more than 20 percent of discretionary consumption, or the amount of spending outside of basic needs like food, shelter and clothing. This includes money spent on luxury items, recreation, vacations and other non-essential goods and services.
Similar to the post-war optimism in the US that gave rise to a generation of baby boomers, the report noted that a sense of national confidence after the fall of the Marcos regime had led to a hike in Philippine births, giving rise to this demographic sweet spot.
To come up with this report, CLSA surveyed 400 Filipino yuppies. On average, they make P471,000 ($11,000) per year which is 3.5 times the per-capita gross national income. With the yuppies’ savings rate at around 25 percent, CLSA estimated their cumulative spending capacity at up to P955 billion ($22.5 billion).
“Our findings revealed that as the political environment improves, yuppie appetites shift to long-term, significant investment assets such as property and vehicles, making this group’s economic impact more pronounced and permanent,” the research said.
By 2020, CLSA thus projected this demographic to contribute 50 percent of the country’s discretionary expenditure and at least 20 percent of total gross domestic product.
“As their numbers swell and superior incomes climb, their voracious propensity to spend will be a huge boost to local firms with exposure to this story,” the report said, noting that the rise of this sector would be hugely beneficial to the consumer, gaming and property sectors.
CLSA’s top stock picks based on this Filipino yuppie theme and its respective price targets are the following: Ayala Land Inc. (P26.50), Alliance Global Group Inc. (P14.50), JG Summit (P41), SM Investments (P885) and SM Prime (P17.30). Of these top picks for the theme, CLSA has already hit the price target.
Overall, the study noted that 25 percent, or 23.8 million, of the population belong to the 25-34 age group, of which about 12 percent, or 2.9 million, reside in the National Capital Region and about 2.7 million are employed. Between 2005 and 2010, the research noted that the yuppie base grew by 11 percent, outpacing the 6-percent growth in the labor force in the same period.
“Confirming this, our findings note that while 36 percent of our total respondents already own a piece of residential property and 42 percent own at least one vehicle, more than 70 percent are still looking to purchase property and 60 percent want to buy another vehicle in the short to middle term,” the study said.
(Story courtesy of Doris C. Dumlao of the Philippine Daily Inquirer)

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