Is the Philippines ETF Back on Track? - ETF News And Commentary
October 23 2013 - 11:48AM
Zacks
South-east Asian
economies, once the hot-spot for foreign investments, had suffered
massive outflows of foreign capital after the start of the
taper-talk. These markets have stabilized of late after the
no-taper shocker by the Fed. Further, Janet Yellen’s nomination as
the Fed’s next Chairperson and the ongoing political drama in
Washington has raised hopes of no change in the QE program in the
near future. (Read: 4 Unbeatable ETF Strategies for Q4)
Looking at the longer-term, I believe that countries that are
dependent on ‘hot money’ to finance their external deficits will
remain vulnerable to the taper threat. On the other hand,
countries with strong external position, sound macroeconomic
fundamentals and a stable political environment will outperform
going forward. Philippines ETF is worth a look from the longer-term
perspective.
Philippine Economy in Focus
According to the IMF, the economy will grow at 6.8% in 2013, backed
by solid domestic demand, while inflation will remain low at
~2.8%.
Current administration led by President Aquino has been very
effective in combating corruption and tax evasion. Due to rising
revenues, the government has been able to keep the fiscal deficit
at a low level, despite increased spending.
Thanks to its large educated young English-speaking workforce,
Philippines has been growing in popularity as a BPO destination and
has emerged as a tough competitor to India. The BPO industry
already contributes more than $11 billion to GDP, and is expected
to grow to $25 billion by 2016. (See: Emerging Market ETFs—How to
pick winners)
Further, remittances from abroad-- accounting for 8 to 10% of
country’s GDP--have been instrumental in driving domestic growth.
Rising remittances will be supportive for the currency, which
though down about 5% against the dollar this year, still looks much
better compared with some other emerging markets currencies, which
have suffered double digit declines during the same time frame.
With a current account balance at 2.5% of GDP, fiscal deficit at
less than 2%, strong growth and foreign exchange reserves at about
$85 billion, the country seems in a position to withstand the
effects of foreign capital reversal in future.
Investment Grade Rating
Earlier this month, Moody’s upgraded the sovereign credit to
‘Investment Grade’ with a ‘Positive’ outlook. The rating agency
took into account “robust economic performance, ongoing fiscal and
debt consolidation, political stability and improved governance” in
determining the rating. S&P and Fitch had upgraded their rating
on the country earlier this year.
Long-term fundamentals for the economy also look good in view of
the stable political situation and the popular government that
seems committed to accelerate the pace of reforms in the country.
(Read: European ETFs--Surge in Popularity)
iShares MSCI Philippines Investable Market Index
(EPHE)
Launched in September 2010, the product has managed to attract $302
million in assets so far. It holds 41 securities, mainly from the
Financials sector. Industrials, Consumer Staples and Telecom also
get double digit allocations. The fund charges an expense ratio of
65 basis points. It has returned about 5% year-to-date, compared
with a negative return of 1.1% for the broader emerging markets
ETF.
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ISHARS-EMG MKT (EEM): ETF Research Reports
ISHARS-MS PHILP (EPHE): ETF Research Reports
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