Philippines stocks and ETFs have been under stress for quite some time now. iShares MSCI Philippines (NYSEARCA:EPHE) slumped over 10.21% in the last three months (as of January 4, 2017) while the broader emerging market ETF Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO) lost about 3.2%.
Underperformance of EPHE can be blamed on political turmoil in the country. The new government led by President Rodrigo R. Duterte, which officially took charge on June 30, made unexpected changes in the foreign policy. Also, state-sanctioned drug crackdown, which has resulted in thousands of killings, further complicated things. To make matters worse, Duterte passed several controversial remarks against foreign governments and leaders, which added to the volatility in the stock market.
The emerging markets are also suffering on fear of implementation of Trump's anti-trade protectionist policies. The surge in U.S. dollar on the President-elect's promise to introduce a burst of stimulus by increasing infrastructure spending package, easing regulations and tax cuts to accelerate economic growth and create more jobs in the country aren't helping the frontier market's investment case either. In fact, Fed's second interest rate hike in a decade earlier this month and its hawkish stance for the next year hampers the appeal of emerging markets like Philippines.
However, the new government did bring about policies to accelerate growth. It boosted its infrastructure program and prioritized economic development. The July-September quarter saw a three-year high GDP growth rate to 7.1%, benefiting from strength in household consumption. Several analysts expect that the country could exceed 6% to 7% GDP growth this year.
The country's growth momentum is expected to be supported by an aggressive ramp-up in public spending, particularly on infrastructure and continued growth in private investment.
Philippines is expected to remain among the fastest-growing economies in the Asia Pacific. However, political risks could put pressure on the country's ETF. Below we highlight the Philippines ETF in detail.
EPHE in Focus
The ETF looks to provide exposure to a broad range of companies in the Philippines by tracking the MSCI Philippines Investable Market Index. The fund invests about $141.8 million of assets in 44 securities. The fund trades in modest volumes of 320,000 shares on an average per day.
The financial sector takes the top spot in the fund with about 45% exposure and is closely followed by industrials (22.9%). No other sector gets a double-digit allocation in the fund.
It is worth noting that the fund has considerable concentration risk with about 60% of the assets invested in the top 10 holdings. SM Prime Holdings (OTC:SPHXF) (OTC:SPHXY) (8.72%), Ayala Land (OTC:AYAAF) (OTC:AYAAY) (8.71%) and JG Summit Holdings (OTCPK:JGSMY) (7.44%) make up the top three holdings.
The fund charges an expense ratio of 62 basis points. EPHE currently has a Zacks ETF Rank #5 (Strong Sell) with a Medium risk outlook.
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