Already up more than 34 percent year-to-date, a performance
that ranks among the best for country-specific ETFs, the iShares
MSCI Philippines Investable Market Index Fund (NYSE:
EPHE
) could be on the receiving end of another positive catalyst.
Over the weekend, Philippine President Benigno Aquino reached
a deal with Muslim rebels that is being viewed as the country's
best opportunity to end four decades of violence with insurgent
groups. Negotiations with the Moro Islamic Liberation Front are
being hailed as an opportunity for the Philippines to end
violence with rebel groups, including some with ties to al-Qaeda.
Four decades of violence with rebel factions has resulted
200,000 deaths, according to Bloomberg
.
For investors, increased peace and stability in the
Philippines could be the catalyst to increase foreign investment
in what is already a buoyant economy. EPHE has proven resilient
in the face of turbulent times for other emerging markets ETFs
and Philippines-specific challenges.
For example, the ETF languished in August
after floods struck the country, claiming nearly
100 lives
. EPHE shrugged off the August downdraft to touch a new all-time
last week.
Even without news of a possible peace accord with militant
factions, the Philippines and EPHE have already provided
investors with plenty of bullish catalysts this year. Earlier
this year, Standard & Poor's boosted its ratings on the
country's long-term foreign currency-denominated debt to BB+ from
BB. That is the highest rating for the country since 2003. The
move by S&P followed Moody's Investors Service raising its
outlook to positive on the Philippines in May. These moves make
sense as the Philippines was home to a debt/GDP ratio of
51 percent as of the end of the first quarter
.
In the first half of this year, the Philippine economy grew by
6.1 percent. GDP growth is expected to be 4.2 percent this year
and five percent in 2013,
according to World Bank estimates
.
News of the peace talks could help accelerate the Philippines'
long-standing goal of attaining an investment-grade credit
rating. It could also help the country do something Aquino has
long desired: Attract more foreign direct investment to unlock
mineral riches in the country's south. The Philippines has an
estimated $312 billion in mineral deposits in the south,
Bloomberg reported.
Increased mining in the Philippines could boost EPHE because
the ETF devotes over 27 percent of its weight to industrial and
materials names combined. EPHE also allocates almost 38 percent
of its weight to financial services names. The Philippines is
home to a vibrant, growing banking sector, but one that is not
nearly the size of some more advanced emerging markets. Backed by
already strong economic growth, increased political stability and
foreign investment could benefit EPHE's largest sector weight,
propelling the ETF higher in the process.
Then there is the country's robust external position, which
includes $76 billion in foreign reserves
and a legitimate possibility of being debt free in the coming
years.
EPHE, which has $105.2 million in assets under management,
trades at 20.6 times earnings and 3.1 times the weighted average
book value of its components. Both figures imply EPHE is
expensive relative to a broader fund such as the iShares MSCI
Emerging Markets Index Fund (NYSE:
EEM
), both EPHE has justified the premium this year and the fund
sports a beta of below one.
For more on the Philippines, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.