Solid Growth Puts Philippines ETF In Focus [iShares MSCI Philippines Investable, iShares MSCI Emerging Markets Indx (ETF)]

PhilippinesEmerging markets (EM) have fallen out of the favor on the Fed’s escalation of the QE taper which has left many investors apprehensive about the near term outlook. Amid such a backdrop, some nations with robust exports and sound macroeconomic fundamentals held up pretty well.

The Philippines is one such country. This is especially true given the nation’s robust GDP growth rate.

Economic Indicators Round Up

The Philippines economy has expanded at the fastest clip since the 1950s over the last two years logging GDP growth of 7.2% in 2013 on top of 6.8% in 2012. This towering growth rate – despite the multi-billion peso wreckage from Super Typhoon Haiyan (which hit the island nation in early November) tagged it the second fastest growing major economy in Asia placing it just behind the China which grew 7.7% in 2013.

The uptick in service and industry sectors was given credit for this impressive gain. Also, expansion of business process outsourcing firms and flocking tourists contributed to the nation’s success story.

The country reiterated its growth projection of 6.5% to 7.5% for this year. The growth outlook was raised by the IMF which expects the country to be supported by higher exports and reconstruction of areas thumped by the typhoon. IMF upgraded the 2014 growth outlook to 6.3% from 6% in September while the nation is expected to grow in the range of 6.5% to 7.0% in 2015.

Another research organization, Citigroup, anticipates the Philippines’ GDP growth to be 6.8% this year and strike a 7.3% growth rate next year, aided by some huge public-private partnership projects underway. President Benigno Aquino aims to attain 8.5% growth by 2016.

Exports comprise about one third of Philippine GDP which makes the country vulnerable to the health of its major trading partners. The country trades a great deal with Japan (around 28%), and the U.S. (15%) ensuring that it is heavily exposed to two countries which are growing at a reasonably solid clip (read: Is Another Great Year Ahead for Japan ETFs?).

The Philippines is among the very few countries in Southeast Asia that have a decent current account balance – less than 3% of GDP – at present. Remittances from abroad – accounting for 8% to 10% of country’s GDP – is another striking part of the economy which drove its forex reserves and shored up its currency to a large extent. Thanks to these respectable economic indicators, the Philippines attracted the second biggest foreign direct investment (FDI) inflow for the first half of 2013.

The Philippines currently boasts foreign exchange reserves of about $80 billion. Its currency peso slipped only 2.3% so far in the year (as of February 10, 2014). The rate of decline is quite limited in contrast to the broader emerging market currency ETF WisdomTree Emerging Currency Fund’s (CEW) loss of 7.08% in the past one month. Thus, the country appears to be in a position to withstand the effects of foreign capital reversal in the future.

Market Impact

Since the release of its 2013 GDP numbers (in January 2014), the broader market fund on Philippines economy –iShares MSCI Philippines Investable Market Index (EPHE) – gained 1.7%. This is the only one pure-play ETF in the Philippines market.

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