iShares MSCI Philippines ETF
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Healthcare and biotech led last week's winners, with EPHE, BBC, HELX, XHS and SURI topping ETF gains as markets slid on AI worries and Fed uncertainty.
iShares MSCI Philippines ETF stands out as a compelling value play amid globally stretched valuations. U.S. and other developed markets appear fully priced, while emerging markets, especially the Philippines, offer attractive P/E ratios. EPHE provides exposure to the Philippines, currently one of the world's cheapest markets by P/E, suggesting strong relative value.
Philippines' macro backdrop is improving, with accelerating GDP growth, easing inflation, and supportive monetary policy likely to boost EPHE's prospects. EPHE offers compelling value, trading at deep discounts to peers on both earnings and cash flow, alongside a decent yield above most Asian and global markets. Industrial sector recovery and favorable export conditions further support the ETF, while technicals suggest mean reversion potential after prolonged underperformance.
The Philippine stock market (represented by EPHE) currently trades an attractive earnings multiple of just 11x, compared to 20x earlier in the decade. I am concerned, however, by the slow-growth nature of some of its holdings and the degree to which some companies are controlled by families. Given that since inception, EPHE has provided a total return of just 26.5% versus 546% from the S&P 500, investors need a very convincing reason to invest in the ETF.
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The iShares MSCI Philippines ETF which covers 32 stocks from the Philippines has experienced a volatile 2024 and is underperforming EMs quite significantly. EPHE's Q3 GDP was hampered by Tycoon Kristine, but the growth prospects for next year look more alluring. Manufacturing PMIs reflect healthy conditions in the industrial sector (the largest sector exposure), while the investment climate is also getting an uplift from favorable reforms.
US equities have outperformed the rest of the world for a long time now. While the US is up 58% on a total return basis during the current bull market, the rest of the world is up 13.5 percentage points less at +44.5%. Looking at the international dividend ETF over a longer time frame, over the last five years, it's up 20.6% in price and more than double that on a total return basis.
Philippine large caps have been in decline for over a decade now. Fundamentals offer little evidence of a change in fortunes. Pending a meaningful shift in the investment case, I'd remain sidelined.
The Philippines is an interesting investment prospect due to its dynamic economy, young population, and proximity to Asian markets. As tensions in the South China Sea escalate, the US/Philippines relationship is strengthening, which could be a boon for equity markets.
While the China macro story of ongoing transition is a headwind to the rest of Asia, there is more to the region's economic health than this.
The total nominal GDP of the ten ASEAN nations measured in US dollar terms amounted to USD 3.6 trillion in 2022, more than doubling compared with total GDP of USD 1.6 trillion in 2009. Singapore's GDP growth rate improved to a pace of 2.8% y/y in the fourth quarter of 2023 according to the advance estimate of GDP from the Ministry of Trade and Industry (MTI).
With moderating inflation levels in most Asian countries and great growth potential in the medium to long term, investing in Emerging Asian countries can prove beneficial.
Emerging Asia countries can be great investment opportunities in the medium to long term. With rating agencies revising their 2024 growth projections for these countries upwards, look into how they stand to gain and what funds investors can invest in to gain exposure.
The iShares MSCI Philippines ETF has extended its underperformance in recent months. Fundamentally, the issue remains core inflation – but there are emerging tail risks as well. Valuation-wise, I'm not sure there's enough margin of safety here.
EPHE: A Far From Ideal Near-Term Setup For Philippine Equities.
EPHE invests in the Philippines equity market. The equity market offers a decent forward IRR, but I would argue this higher IRR is justified.
It's been a rough and tumble year for investors in 2022. Major indices have retreated, failing to sustain a comeback.
Economic forecasts cut as COVID-19 response hinders China's expansion, ADB said.
Non-China Asian exports are still growing, but the pace of increase has slowed and will slow still further as key export destinations struggle with inflation, energy security, and rising recession risks. In year-on-year terms, the rate of overall export growth is now skirting single-digits again.
Ferdinand Marcos Jr. won the May presidential election by a landslide while simultaneously securing key posts for his allies. The Philippine economy returned to pre-Covid levels in early 2022 after 1Q GDP rose 8.3% year-on-year.