It is no secret that the Philippines is pushing for an
investment-grade credit rating. In fact, and some would say to
the country's credit, policymakers there have been overt in their
desire to see the country's credit rating boosted.
In March 2012, the country's chief economic manager said in
public that the Philippines is "is the most underrated country in
the world" and that the country's current rating is
four notches below where it should be
At least one major global bank has bought into the thesis
set forth by Benzinga in mid-2012
. That being the Philippines will in fact see an investment-grade
credit rating at some point in 2013.
In a new research note, HSBC said it expects the Philippines
to land an investment-grade rating in the second half of this
year. Additionally, the bank raised its 2012 GDP growth forecast
for the Southeast Asian country by 30 basis points to 6.5 percent
and its outlook for this year to 5.9 percent, also a 30-basis
For now, the HSBC report is having a minimal impact on the
iShares MSCI Philippines Investable Market Index Fund (NYSE:
). EPHE, one of the best-performing
of any stripe in 2012, is up fractionally Monday on above-average
turnover. However, it is worth noting the $240 million ETF is
less than 30 cents removed from its all-time high touched earlier
Betting on exactly when the Philippines lands an
investment-grade rating could prove tricky. In May 2012, Moody's
Investors Service finally got around to raising its outlook to
positive on the Philippines. It took Standard & Poor's two
months display similar confidence in the Philippines, but the
ratings agency did raise
its rating on the Philippines long-term foreign
currency-denominated debt to BB+ from BB, the highest rating
. That is just one level below investment-grade.
A case can be made that the Philippines is already deserving
of an investment-grade and that EPHE's stellar performance over
the past year shows investors have started to price in that event
before it happens. After all, the Philippines had
gross international reserves of almost $82.1
billion in October 2012
and a debt-to-GDP ratio of less than 51 percent.
Another reason the Philippines merits serious consideration
for an investment-grade rating is the health of its financial
services industry. Philippine banks were by far the best performs
in Southeast Asia last year, corporate loan demand is robust and
favorable interest rates buoy consumer credit
Should those themes hold throughout this year, EPHE could
continue running higher as the ETF devote over 41 percent of its
weight to financial services names.
Investors will also want to consider Philippine bonds in
advance of a credit rating upgrade. HSBC favors
dollar-denominated issues, Barron's reported. The iShares J.P.
Morgan USD Emerging Markets Bond Fund (NYSE:
), the largest ETF tracking dollar-denominated emerging markets
sovereign debt, features an almost 6.6 percent weight to the
Investors looking to play Philippine bonds denominated in the
local currency, the peso, should consider the WisdomTree Asia
Local Debt Fund (NYSE:
), which features an allocation of almost 5.8 percent to the
Philippines. The iShares Emerging Markets High Yield Bond Fund
) features a 10.2 percent weight to the Philippines, but that
fund presents some added risk in the form of its
large exposure to Venezuelan issues
, which have been somewhat volatile in the wake of news reports
regarding President Hugo Chavez's failing health.
For more on ETFs, click .
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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