For many Filipinos, stocks, bonds and mutual funds sound too complicated. Bank deposits are still the darlings of saving and “investing” and lately, they have been getting a facelift. Yesterday, they were marketed directly to Filipinos working overseas.

Long-term negotiable certificates of deposit, bankers call this product. Trust bankers and investment managers to come up with a mouthful of a name! MoneySense says if you want an easy way to remember, break it down per term.

LT is for long-term, N is for negotiable and CD is for certificate of deposit. In other words, it’s a hybrid product. See that wasn’t so hard, says MoneySense. Right on!

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What do you give to someone who has everything?A few Christmases ago, Synergeia Foundation president Milwida Guevara found herself worrying what to give to Washington Sycip for Christmas.

Apart from being a well-known figure in the business sector, Wash is one of the reasons Synergeia can do so much work in the education sector, Milwida says. (If you are interested in reading more about this very interesting man, read my favorite professor’s blog post on him here. Butch Dalisay finished his biography on Wash Sycip just this year.) After agonizing about her problem, Milwida bought Wash a toy train that moves on its tracks. You know the type, either your son wants one or your husband does.

“He was so happy with it, he played with it in his office and called his staff to look at the train,” Milwida told me, laughing.

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The urge to splurge and miserly behavior are on opposite sides of the spending habit spectrum, but it’s not too hard to imagine most of us swinging from one side to the other at any given time.

That’s because everyone has weaknesses. I’m not very particular with electronic gadgets, for example, so I lived with a Nokia 3310 when everybody was taking snappy pictures with their latest model mobile phones. My friends told me that was super miserly behavior.

Get me into a kitchen showroom, however, and I will be hard-pressed to don my frugal hat. I “NEED” everything that comes with a nice kitchen, although I don’t know how to cook well! I thought I was moneysmart and was in my safety zone until the kitchen showroom came along. Then boom, sorry spending plan for 2006!

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Hot money, hot Pinoy seafarers (were you thinking of hot Pinoy hunks? Tsk tsk), hot business opportunities in medical tourism – everything’s hot today except the weather. We are expecting another typhoon…sigh. It’s always like that before or after my birthday. EVER since I was born 21 years ago. (Did you just do a double take?)

The Philippines attracted $274 million net “hot money” last October, the Philippine Daily Inquirer reported today. That’s quite a huge jump from $35.8 million in September, and totally deserves a blog post.

In this post,  I wrote that hot money refers to short-term investments by foreign investors in local stocks, bonds and money market instruments. While they influence the local financial market, we need to remember that they are very speculative and can leave our shores at the touch of a button. The long-term growth of our stock and bond markets, in fact, will depend on whether domestic investors (that’s you, me and our OFW friends and relatives abroad) will begin to invest in the domestic market. Policy-makers hope a wider base of domestic investors will not be as jumpy as foreigners.

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(Source: PDEx brochure)

Last month, reader Ricardo Pitogo asked this question in MoneySmarts, in reaction to my first post on the OFW bonds:

I read your article on the planned OFW bonds. But I am more interested in learning to trade bonds. I read the article of Dr. Noet Ravalo in the PDI on bonds. May I know if the Bond Trading Platform has already been put up by the Bankers Association of the Philippines? If so, how can I contact it? Lastly, do you happen to know if the Treasury Department of the Bangko Sentral ng Pilipinas can be a venue to buy and sell bonds? Thank you very much for your kind attention. – Ricardo M. Pitogo

Dr. Noet Ravalo answered him in his article today. Here’s an excerpt:

The trading platform that is currently operational is the one used by dealers to transact government securities in the “spot market”. For now, the participants are the larger institutions and the object of trade are Philippine treasuries. The PDS infrastructure follows the international best practice of Delivery-versus-Payment (DVP), which literally means that adequate balances of securities (for the seller) and cash (for the buyer) must be both available before the transaction goes through. While this may seem to be an obvious requirement for a “spot securities market”, it may interest you that in the old design, the seller would only know at the end of the trading day if the buyer had sufficient cash to pay for the securities.

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 When I wrote about the Bangko Sentral’s plan to revive its proposal to float $1-billion in bonds for overseas Filipino workers, the reactions were a mix of skepticism and curiosity.

Many did not trust the government, so lending money to this administration (which is, in effect, what you would be doing if you buy the bonds) did not make any sense. Others are concerned that the bonds are dollar-denominated, and with good reason because for the past year, the dollar has been losing value against every other currency of the world.

Personal finance expert Alijeffty Gonzales, however, raised some points that should also be considered by many of us.

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Doris Dumlao wrote an interesting story today in the Philippine Daily Inquirer:

MANILA, Philippines–THE GOVERNMENT has revived plans to offer as much as $1 billion in retail treasury bonds to overseas Filipino workers as proposed by the Bangko Sentral ng Pilipinas (the Philippine central bank) to harness large remittance flows for productive investments.

BSP Managing Director Ma. Cyd Amador said the BSP and the Bureau of the Treasury have resumed discussions on the proposed OFW bonds. “It looks like they (Treasury officials) are more open this time around,” Amador said.

She said the BSP and the Overseas Workers Welfare Administration were considering holding overseas roadshows on financial literacy, focusing on countries that host big Filipino communities.

Click here to read the rest of the article.

Most interesting points:

1. Government has now realized the importance of teaching Filipinos, especially OFWs, about financial literacy. Enough about politics, let’s learn how to keep our heads above the water by learning how to save and invest.
2. Can investing in bonds really help OFWs reintegrate into the economy? Alone, it can’t, but together with a well-thought out plan (and lesser corruption and better business environment), maybe. With the dollar continuing to weaken, some economists say that more Filipinos will be coming back home. What will they come home to? A manufacturing sector that is hollowing out as more companies rely on automation and technology rather than hiring people, thus no employment opportunities. Entrepreneurship and investing wisely will increasingly be a popular option.
3. Bangko Sentral expects remittances to slow down significantly next year (as in 5% from 15%) and its study shows OFWs send less home when the economy is not doing so great.

For those who are interested in buying OFW bonds, better read this article by Noet Ravalo. It’s a bit dated (he wrote it in 2003 for then INQ7.net) but you will still learn a lot from the principles he explained:

The danger of getting too complacent with bonds

Here’s an excerpt:

Many people have the impression that investing in bonds is fairly straightforward and that bonds are a no-brainer no-risk investment.

The truth is anytime you buy in or unload before maturity, there are enough pitfalls to cause serious financial ruin.

Bonds are long-term debts issued either by a country or by a corporation. There is no absolute definition to the qualifier “long-term” but we associate bonds as those with maturities longer than one year.

Anything shorter than a year’s maturity is referred to as a “bill”. This is why you hear terms like Treasury bills (T-bills) and Treasury bonds (T-bonds).

The terminology though can be extra confusing in the Philippines. Instead of a corporate bond, for example, tax considerations have instead coined the phrase Long-Term Commercial Paper (LTCP).

As a long-term debt, bondholders receive a periodic payment called “coupon”. These coupons are paid to the bondholder every six months.

If you plan to hold a particular bond from the time it is issued, to its maturity date, the return you get can be summarized by the coupon.

But very few hold a long-term instrument for its full term. Normally, investors buy and sell during the life of the bond and this trading activity leads us to the issue of price fluctuation. 

Happy investing!