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
ISHARS-EMG MKT (EEM): ETF Research Reports
ISHARS-MS PHILP (EPHE): ETF Research Reports
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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
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
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
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.
European ETFs--Surge in Popularity
iShares MSCI Philippines Investable Market Index (
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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