With a year-to-date loss of nearly 10%, it is fair to say the iShares MSCI Philippines ETF (NYSEArca: EPHE) has been a disappointment among single-country emerging markets exchange traded funds this year.
The lone Philippines ETF can be seen as a 2015 dud because it started the year on a strong note, rising as oil prices tumbled. In the case of the Philippines, the country imports nearly all of its oil use, meaning EPHE is one emerging markets ETF that should benefit from lower fuel prices.
“The Philippines has favorable prospects for strong economic growth, and as a net oil importer, stands to benefit from a prolonged period of lower oil prices via lower inflation and a compression of its import bill,” according to Moody’s Investors Service.
Moody’s also said that the outlook for Philippine banks remains positive on the back of its robust economic growth and strong banking-sector fundamentals and that government spending on infrastructure projects will provide the tailwind for higher growth, according to Emerging Equity.
For 2015, Morgan Stanley “said the Philippines was the best-positioned market due to its ample liquidity, strong forecast gross domestic product growth and low levels of credit penetration,” reports The Star.
A stronger U.S. dollar is helping Philippine stocks beyond lower oil prices. Foreign remittances are now worth more when converted into pesos, helping boost the local economy.
“If you want exposure to one of the fastest growing economies in Asia and the World, with brilliant demographics and a rising middle class, with strong jobs growth, at a reasonable valuation then EPHE is a great long term investment,” according to Seeking Alpha.
In what would be good news for wary emerging markets investors, developing world stocks may be nearing a capitulation point and some marquee banks are taking bullish views of this downtrodden asset class.
Some fund managers believe it will be a while before emerging markets stocks recover in earnest. Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed, commodity prices fell and the Federal Reserve signaled an interest rate hike this year. The China slowdown is fueling the lower commodity prices and lower outlook for other major emerging economies. Moreover, rising borrowing costs, a stronger dollar and rising corporate debt loads, with the International Monetary Fund warning of corporate defaults, are adding to volatility. [Area Emerging Market ETF Investors Must Monitor]
“The usual risks apply to emerging markets. Currency risk would be the main one to consider. Also there will be an election in 2016 and a new Government. Geo-political risk is another with recent South China Sea issues with China,” according to Seeking Alpha.
iShares MSCI Philippines ETF
