A stronger peso could be the latest catalyst to prove
efficacious for the Philippine investment thesis, one that has
been on the receiving end of
plenty of bull calls this year
Bank of America-Merrill Lynch sees the Philippine peso
averaging 41 against the U.S. dollar in the first quarter of 2013
before appreciating to the sub-40 area. As of today, $1 buys
almost 41.2 pesos. The Bank of America-Merrill Lynch forecast is
more bullish than the government estimate of 42 to 45 pesos to a
Bank of America-Merrill Lynch, which expects the peso to
average 42 in the current quarter, said
in a research note
the outcome of today's U.S. elections will have a "neutral"
impact on emerging markets currencies, including the peso.
A strong peso could lead to lower profits on exports, but that
scenario may not hamper the iShares MSCI Philippines Investable
Market Index Fund (NYSE:
) as much as might be expected. EPHE, the lone ETF exclusively
devoted to the Philippines, is heavily focused on the country's
domestic economy, not its export story.
Financial services, utilities, consumer staples and
telecommunications names combine for over 68 percent of EPHE's
weight. Those sector weights highlight the fund's leverage to the
Philippines' domestic growth story. That growth story
has helped make EPHE one of the best emerging
markets ETFs in 2012
With nearly $137 million in assets under management, EPHE has
surged almost 37 percent this year. Earlier today, the ETF
touched a new all-time high at $32.34. The country has $76
billion in gross international reserves and
improving credit ratings
, so it is possible foreign investors can deal with a stronger
peso to gain exposure to Philippine equities.
The other side of the story is that a stronger peso could
benefit Philippine bonds, an asset class that can also be
. The iShares Emerging Markets Local Currency Bond Fund (NYSE:
) features a weight of almost 4.4 percent to the Philippines.
Investors looking for actively managed funds should consider
the WisdomTree Emerging Markets Local Debt Fund (NYSE:
). ELD, the second-largest actively managed ETF on the market,
has a 3.5 percent allocation to the Philippines. ELD's cousin,
the WisdomTree Asia Local Debt Fund (NYSE:
), goes even further. ALD, which has almost $432 million in AUM,
sports a 5.68 percent weight to the Philippines.
All three of these bond funds share two important traits in
common. All pay monthly dividends and the holdings in all three
are denominated in local currencies, including the peso,
providing investors with a hedge against dollar weakness.
For more on the Philippines, click
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