So far in 2010, the ETF market has been booming as a variety of new and interesting funds hit the market seemingly every week. While the great majority of this interest has gone towards commodity funds and a host of bond ETFs, products targeting international markets have also made a name for themselves in recent months. Some continue to target varying aspects of the BRIC economies such as consumer or infrastructure sectors while others have taken a different approach and have given investors exposure to a variety of smaller and often unreachable equity markets.
Expansion in this sector of the ETF world has been tremendous with funds targeting countries ranging from Peru to Poland hitting the market in recent months. iShares, the world’s largest ETF company has been at the forefront of this development having recently launched the much anticipated (at least by me), iShares MSCI New Zealand Investable Market Index Fund (ENZL). Now it appears as if the company is continuing its expansion in the Asia-Pacific region by planning a new ETF that will target the Philippine equity market [see the complete list of iShares ETFs here].
According to a recent filing with the SEC, the fund will be called the iShares MSCI Philippines Investable Market Index Fund and will trade under the symbol EPHE. The index that the fund will track is a free-float adjusted market capitalization weighted index designed to measure the performance of equity securities in the top 99% by market capitalization of equity securities listed on stock exchanges in the Philippines. As of October 30, 2009, the Underlying Index had 28 constituents and its three largest industries by component weighting were financials, telecommunication services and utilities [see Emerging Markets ETF Boom Continues].
The Philippines: Under The Microscope
The Philippines currently contain a little less than 100 million people, making the nation the 12th most populous country on Earth. The country also has relatively solid demographics going forward with a young population that is growing steadily. According to the CIA World Factbook, “Philippine GDP grew just under 1% in 2009 but the economy weathered the 2008-09 global recession better than its regional peers due to minimal exposure to securities issued by troubled global financial institutions; lower dependence on exports; relatively resilient domestic consumption, supported by large remittances from four-to five-million overseas Filipino workers; and a growing business process outsourcing industry.”
This economic situation is somewhat similar to that of Indonesia which has also weathered the downturn better than most thanks to its robust consumer economy. If the Philippines are able to follow in their southern neighbor’s footsteps it could be great news for investors in the country. This is already beginning to happen as the country experienced 7.3% growth this past year after growing at just 0.5% for the 2008-2009 period suggesting that its economy many be able to also survive economic storms better than its more export-oriented counterparts in Asia while also providing strong levels of growth quickly after the downturns [also read Why Indonesia Belongs In The BRIC].
Despite these positives, it should be noted that the country also faces significant headwinds on its path to growth. Many remain extremely poor in the country and the best and brightest often leave for greener pastures, as evidenced by their high remittance level. This is likely due to rampant corruption in the country; according to a recent competitiveness report, the country ranks in the bottom five in the world for public trust of politicians and ‘diversion of public funds’. The country also ranks in the bottom 25% for efficiency of the legal system, bribes, and ethical behavior of firms, underscoring just how deep and pervasive some of the country’s significant problems are to growth in the future [also check out Seven Most Corrupt Country ETFs].
According to the Country Lookup Tool, only four ETFs offer exposure to the Philippine equity markets with the top allocation coming from the SPDR S&P Emerging Asia Pacific ETF (GMF) which only allocates a paltry 1.6% to the island country. Clearly, this new fund from iShares, should it ever hit the markets, will help to fill a huge emerging market hole in the increasingly dynamic Asia-Pacific region.
Disclosure: Eric is long ENZL.