The iShares MSCI Philippines Investable Market Index Fund
) is trading modestly higher Thursday, but the ETF's slight
uptick is enough to have the fund in striking distance of a new
all-time high and extends a run that has seen EPHE gain nearly
five percent in the past month.
Although it flew somewhat under the radar, another compelling
catalyst for EPHE and the Philippine investment thesis arrived
earlier this week when Moody's Analytics said in a report
published Wednesday that the economy there is poised to grow 6.5
percent to seven percent this year. Moody's Analytics, a unit of
ratings agency Moody's Investors Service, is forecasting similar
2014 growth for the Southeast Asian nation.
Despite the reputation of ratings agencies being perpetually
late to nearly every important party over the last several years,
it should be noted that in the case of Moody's and the
Philippines, that is not the case. In fact, Moody's raised its
outlook on the Philippines to
positive in May 2012
. In October, the ratings boosted its rating on Philippine debt
to Ba1, one level below investment grade territory.
Last June, Standard & Poor's finally got around to raising
the country's long-term foreign currency-denominated debt to BB+
from BB, the highest rating since 2003.
Those actions were precursors to the obvious: An
investment-grade credit rating. Last month, EPHE soared when
Fitch Ratings upgraded the Philippines'
long-term, foreign currency-denominated debt to BBB- from BB
and the long-term local currency-denominated debt to BBB from BBB
with stable outlooks on both ratings.
In other words, the Moody's Analytics report published
Wednesday may not tell investor that actively follow the
Philippines and EPHE anything they do not already know. However,
the report does reiterate some of the pillars of investing in an
ETF like EPHE. One being that the lone Philippines ETF has been a
juggernaut among emerging markets funds at a time when key export
markets such as the U.S. and China have been home to fragile
More importantly, if the growth trends continue, the
Philippines could see GDP growth of eight percent by 2016,
according to Moody's Analytics
"This impressive rate of GDP [gross domestic product] growth
[last year] looks sustainable, as risks are low and most sectors
of the economy are growing solidly. We expect GDP growth to
remain in the 6.5 to 7-percent range in 2013 and 2014, making the
Philippines one of the world's fastest-growing economies," said
the research firm.
As has been previously note, one reason for EPHE's stunning
move higher is the real story about the Philippines economy. That
being the one where the country is not intimately dependent on
exports to China as many other countries in the region are. China
is the third-largest trading partner for the Philippines behind
Japan and the U.S. Moreover, the Philippines is taking an
important page from the Indonesian economic playbook: A focus on
Buoyed by the Philippines' status as the world's largest
call-center destination and the fact that Filipinos, broadly
speaking, are good English speakers, the country has been able to
attract some higher-wage, high-skill jobs that are not all
export-related. That has helped facilitate robust domestic demand
while damping the country's exposure to export sensitivity.
Standard & Poor's commented on the topic in its own
"China and the Asean 5-Indonesia, Malaysia, Philippines,
Thailand and Vietnam-are more domestically driven and, therefore,
continue to enjoy relatively high and stable growth rates. This
is not the case elsewhere," the Philippine Inquirer reported,
citing the S&P report.
Importantly, S&P noted in the report that Japan's weak yen
could actually help, not hinder, the Philippines because the
country is a net importer of Japanese goods. On that front, it is
important to remember at least two things. First, EPHE was
surging long before Japanese Prime Minister Shinzo Abe and Bank
of Japan Governor Haruhiko Kuroda came to town. Second, the
correlation of EPHE
to major Japan ETFs
is low enough to argue Japan has little impact on Philippine
For more on Asia
(c) 2013 Benzinga.com. Benzinga does not provide investment
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