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Philippines ETF in Focus as Central Bank Raises Rates

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The emerging markets continue to struggle on account of Fed rate hikes and continued sell-off by foreign investors. As the Asian markets remain volatile, the Philippines’ stocks declined 2% on Jun 21, largely due to a stronger dollar performance and persistent selling in the equity markets.

Against this backdrop, the central bank of the Philippines has announced a hike in its borrowing rate from 3.25% to 3.5% and lending rate to 4% from 3.75% with effect from Jun 21. This is the second hike this year, after rates were increased in May 10. 

What Prompted the Rate Hike?

The Philippines recorded a five-year high inflation rate of 4.6% in May, crossing 4.5% recorded in April. The Philippine Statistics Authority (PSA) has stated that mainly seafood, fuel, lubricants and cereals drove the inflation rate higher.

The policy tightening was also the result of a hawkish Fed and a stronger greenback.The country is desperately looking to control an upward spiraling of the inflation rate, while preventing devaluation of the peso. Notably, the Philippine peso has dropped to a multi-year lows against the U.S. dollar.

Is There Any Ray of Hope?

Philippines is riding high on a massive infrastructure development program initiated by president Rodrigo Duterte, wherein around $170 billion will be invested in a phased manner. It is expected to improve employment, bring foreign investments and develop the communication system of the country (read: Get Greater Exposure to Communication with This Proposed ETF).

Per the World Bank estimate, starting from 2018 and running up to 2019, the Philippines is expected to grow by 6.7%, while in 2020 growth will slightly fall to 6.6%. The positive expectations are backed by government initiatives in bolstering growth through infrastructure investments and stable manufacturing sector.

Along with this, the framework of the tax amnesty program has been designed, the implementation of which will begin from April 2019. The finance secretary believes that this in itself can generate revenues of 26 billion pesos (read: Best Sector ETFs of Last Week).

In view of the rate hike, let us dig into a Philippines ETF and its performance in the past month.

 iShares MSCI Philippines ETF (EPHE - Free Report)

The fund has exposure to a wide range of companies in the Philippines and tracks the investment results of the MSCI Philippines Investable Market Index. It charges an annual fee of 62 basis points. The fund has gathered $156.5 million in its asset base and trades an average daily volume of 237,970. It has 43 stocks in its holdings. SM Prime Inc, Ayala Land Inc and BDO Unibank Inc are the top three stocks in the fund with weights of 11.6%, 9.4% and 8.5%, respectively. As for the industry outlook, Financials, Real Estate and Industrials lead the way with weights of 27.5%, 26.1% and 21.5%, respectively. The fund has lost 3.79% in the past four weeks as of Jun 22 and has Zacks ETF Rank #3 (Hold), with a Medium risk outlook (read: Should These 3 Emerging Country ETFs Fear Fed Rate Hikes?).

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