Philippines ETF Hits New High as S&P Joins Investment-Grade Party
Shares of the iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) are soaring 2.2 percent Thursday, touched a new all-time high at $42.47 and all that is happening on volume that looks poised to easily eclipse the daily average.
The catalyst: Standard & Poor's raised the Philippines' credit rating from BB+ to BBB-. Now the Southeast Asian nation has garnered two investment-grade ratings from major ratings agencies in just five weeks.
In late March, EPHE got a lift after Fitch Ratings 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. S&P likes the improving macroeconomic outlook for the Philippines.
"The upgrade on the Philippines reflects a strengthening external profile, moderating inflation, and the government's declining reliance on foreign currency debt," said S&P.
Just a few days ago, S&P boosted its 2013 GDP growth outlook for the Philippines to 6.5 percent from 5.9 percent. In April, Moody's Analytics, a unit of Moody's Investors Service, said it expects the Philippine economy to grow 6.5 percent to seven percent this year.
Last October, Moody's raised its rating on Philippine debt to Ba1, one level below investment grade territory.
Helped by the Philippines' status as the world's largest call-center destination and the fact that Filipinos, broadly speaking, are good English speakers, the country has been able to attract some higher-wage, high-skill jobs that are not all export-related. That has helped facilitate robust domestic demand while damping the country's exposure to export sensitivity.
While there has been chatter among some market participants that Japan's weak yen policy could lead to a lead to bubble in the equity markets of some top-performing Asian emerging markets such as the Philippines, EPHE's correlations to the two largest Japan ETFs are scant and S&P recently said the plunging yen could actually help the Philippines.
In another sign investors are warming to the Philippine investment thesis, EPHE had $205 in AUM in mid-December, but that number is now flirting with $468 million, according to iShares data.
Among bond ETFs with decent exposure to the Philippines, the iShares Emerging Markets High Yield Bond Fund (NYSE: EMHY) is trading modestly higher today. EMHY's allocates 10.7 percent of its weight the Philippines, making the country's third-largest country weight behind Turkey and Venezuela. The $1.99 billion actively managed WisdomTree Emerging Markets Local Debt Fund (NYSE: ELD) is also trading slightly higher Thursday. That ETF has a 3.7 percent weight to the Philippines.
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