It has been a wild year for the iShares MSCI Philippines
Investable Market ETF (NYSE:
), the lone ETF devoted exclusively to the fast-growing Southeast
From the start of 2013 through its pre-tapering talk May
highs, EPHE surged more than 26 percent even as countless pundits
and so-called experts lamented the disappointing performances
being in turned by "emerging markets."
Said another way, while EPHE and Philippines stocks climbed
higher, most professional money managers were licking their
wounds inflicted by the BRIC nations and other large developing
markets. They also missed out on two ratings agencies moving the
Philippines to investment-grade territory.
Philippines ETF Soars On First Investment-Grade
In fairness, ignoring EPHE ended up looking like a good move,
no matter how unintentional, because when talk that the Federal
Reserve would taper its quantitative easing program began in late
May, the ETF sank. Save for a short-lived rally in July, EPHE
fell more than 33 percent from its May high to its September low
around $29. The fund has since jumped 18.2 percent.
A fair amount of EPHE's September success is attributable to
the Fed's decision not to taper QE, one that lifted
a plethora of emerging markets ETFs
. However, last Friday's 4.6 loss reminded investors that EPHE is
not out of the Fed woods yet. No emerging markets ETF is, but
EPHE ought to be. Here is why.
Everyone Loves A Surplus Some previously high-flying emerging
markets have taught investors a valuable: Put a premium on
current account surpluses. Indonesia, one market the Philippines
is often measured against due in large part to regional
proximity, saw its currency battered, bond yields spike and
equity market tumble because tapering talk exposed the problems
of the country's current account deficit.
Two of the top-performing emerging markets over the past few
months have been China and South Korea, both of which have
account surpluses. Well, it cannot be
ignored the Philippines has its own surplus
Goldilocks Monetary Policy When it comes to central bankers,
it is not a stretch to say nearly every American investor knows
who Ben Bernanke is. Plenty also recognize the names Mario Draghi
and Haruhiko Kuroda. They ought to get acquainted with Bangko
Sentral ng Pilipinas Governor Amando M. Tetangco Jr. Tetangco has
his developed market counterparts beat on multiple fronts, but
most notably interest rates. Rates in the Philippines are neither
too high nor so low as to engender concerns about inflation.
So at a time when India and Indonesia are surprising markets
with rate hikes and South Korean rates may already be too low to
do much if the won gains too much strength, the Tetangco's
monetary policy looks good by comparison.
Even before tapering entered the equation the central bank
bolstered foreign exchange reserves, strengthened the country's
external liquidity position and was active in the forex market in
an effort to prevent violent moves in the peso,
according to the Philippine Daily Inquirer
Not Bubblicious There is often talk of investment bubbles and
many revolve around real estate. There has been ample
chatter of Chinese real estate bubble
It was a real estate and construction boom turned bubble that
Dubai's economy and equity market
during the financial crisis. And the list goes on. However,
because the Philippine economic story is still in the early
innings, ordinary Filipinos are looking to buy property for
consumption not speculation. Translated into a language Americans
understand, Filipinos want to buy houses to make a home, not sell
the house three weeks later.
Tapering: Overstated In the hysteria caused by an institution
as powerful as the Fed, it is easy for markets to overreact and
for investors to lose their cool. The negative, tapering-induced
reactions toward Indonesia and other Southeast Asian markets were
justified, but those same reactions should not have been applied
to the Philippines.
"The Philippines doesn't really come out as vulnerable to the
taper in terms of fundamental indicators," said Citigroup, citing
the country's strong forex reserves. The bank added: "Emerging
markets, particularly Asia, are dependent on exports to China.
But Philippines, again, is not that exposed." The bank forecasts
Philippine GDP growth of seven percent this year and .
The growth estimate of seven percent for 2013 may prove
conservative after Philippine GDP jumped 7.5 percent last
Earlier this year, Nomura highlighted the Philippines as one
of the Asian markets least vulnerable to tapering, saying the
account surplus should prove advantageous and that
an improving business climate
is helping lift foreign investment.
Government spending will reach a record this year, which is
doable with the country's strong balance sheet, and necessary to
help lower poverty and unemployment. If those come down, EPHE
should go up.
For more on ETFs, click .
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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