Shares of the iShares MSCI Philippines Investable Market Index
) are up about 2.4 percent Wednesday and the ETF is flirting with
its all-time high after Fitch Ratings became the first major
ratings agency to bestow an investment-grade credit rating on the
Southeast Asian nation.
Fitch 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. Fitch cited the Philippines' strong sovereign
external balance and persistent current account surplus,
the Associated Press reported
The move by Fitch is not surprising. Over a year ago, Benzinga
the Philippines was a credible candidate among
to see an increased credit rating. The country would proceed to
shatter estimates by delivering 2012 GDP growth of 6.6
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. The new rating is just
one notch below investment grade and it is the same rating
S&P has on Indonesia, Southeast Asia's largest economy. The
move by S&P followed Moody's Investors Service raising its
outlook to positive on the Philippines in May 2012.
Following those moves, it was reported that the Philippines
could be debt-free in a few years
due to its strong government balance sheet and booming business
process outsourcing business.
Due to a workforce that is highly educated and chock full of
proficient English speakers relative to other developing
economies, the Philippines has surpassed India as the top
destination for global call centers. Business process outsourcing
could be a $25 billion industry in the Philippines by 2016,
bolstering the thesis that the country is not as dependent on
exports to China as some believe. In fact, in the first half of
China was well behind Japan and the U.S.
in terms of top destinations for Philippines exports.
Hot Money? Not Really As EPHE soared in 2012, a run that made
it one of the best-performing emerging markets
, plenty of chatter started that the ETF was becoming a
destination for hot money, or speculators that would only stick
around for quick profits. Statistics indicate that is not the
While many of the marquee developing nations disappointed
investors, either in terms of GDP growth, ETF returns or both,
EPHE emerged as a credible and more profitable alternative to the
funds tracking the likes of Brazil and India. In July 2012, EPHE
had just over $142 million in assets under management, but the
number surged to
$171.5 million by late November
. Destroying the theory that the ETF is a hot money destination
is that it is now home to nearly $398 million in assets. Even
without the benefit of the Fitch investment-grade move, EPHE was
up 13.4 percent year-to-date heading into the start of trading
today. That simply blows away the returns offered by the four
major ETFs tracking the BRIC nations as well as diversified
emerging markets ETFs such as the Vanguard FTSE Emerging Markets
) and the iShares MSCI Emerging Markets Index Fund (NYSE:
Bonds, Too The investment-grade rating will help lower
borrowing costs for the Philippines and likely make the country's
sovereign debt more attractive to foreign investors. On the
downside, yields on Philippine sovereigns have been tumbling in
anticipation of an investment-grade rating and downside from here
may be limited.
Investors looking to get some exposure to Philippine bonds can
consider some already well-known ETFs. The WisdomTree Emerging
Markets Local Debt Fund (NYSE:
), the second-largest actively managed ETF, has an almost 3.7
percent weight to the Philippines. The WisdomTree Asia Local Debt
), also actively managed, has a 5.7 weight to the country. Both
ETFs hold issues denominated in Philippine pesos.
Another local currency offering to consider is the iShares
Emerging Markets Local Currency Bond Fund (NYSE:
), which currently has a 4.8 percent weight to the Philippines.
Those looking for dollar-denominated debt exposure to the
Philippines should consider the PowerShares Emerging Markets
Sovereign Debt Portfolio (NYSE:
PCY allocates almost 4.4 percent of its weight to the
Philippines and while that may not sound like much, the largest
country weight in that ETF is Sri Lanka at 4.5 percent, so it is
fair to say the Philippines does figure prominently in PCY.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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