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Summary The iShares MSCI Philippines ETF provides convenient exposure to the growth that the Philippines is projected to experience in 2015 and 2016. The particular strengths of this ETF include the real estate, telecommunications, and consumer products industries. Investors who are interested in specific industries or companies can invest in some of this fund’s holdings, as many of them are listed on US exchanges. In a previous article , I mentioned opportunities in the real estate industry in the Philippines. The industry is being driven substantially by business process outsourcing, increased consumer spending, and increased economic growth. Holistically, the Philippines is an attractive destination for investment, and opportunities can be found outside of the real estate industry. An investigation of the country’s economy produces favorable results and makes investment in multiple industries in this country attractive. Real GDP Growth Real GDP growth has averaged at 5.08% from 2001 to 2015, and was 5.2% during the 1st quarter of 2015. Growth for the future looks very favorable, as the IMF has raised its growth projections for 2015 to 6.6% and 6.4% for 2016; GDP growth will be attributed to lower oil prices and increased government spending. (click to enlarge) (Source: Trading Economics ) With consistent growth in GDP and the projected increase for 2015 and 2016, investment in the Philippines provides substantial opportunity for investors. Investors should also consider the following when considering this country: The Philippines peso is becoming more stable , as the exchange rate has averaged between 44 and 45 in 2015; the US dollar increased from 44.42 in May to 44.68 in June. The country had a trade surplus of 264,142 thousand USD surplus in March 2015 and a trade deficit of 300,923.48 thousand USD in April 2015. It had a significantly larger trade deficit during the beginning of 2015. Inflation has been significantly decreasing , and averaged 1.6% in May of 2015. Inflation has been improving in the past year, as it was at 4.9% in August of 2014. Philippines ETF The most convenient for investors to invest in the growth of the Philippines is to invest in the iShares MSCI Philippines ETF (NYSEARCA: EPHE ). The fund is currently trading relatively close to its 52-week low at $39.06. Increased growth in real GDP, as well as substantial growth in the particular industries the fund invests into will provide substantial returns for investors. Although the consumer products and real estate industry demonstrate the most potential, investing in this ETF provides favorable opportunities for investors. The fund invests in the following industries: Real Estate: 25.35% Financial Services: 15.33% Consumer Cyclical: 12.03% Utilities: 14.34% Communication Services: 12.94% Industrials: 11.4% Fund Holdings Company Industry P/E Ratio 2014 Net Income Growth Ayala Land ( OTC:AYAAY ) Real Estate 34.87 26.2% Philippine Long Distance (NYSE: PHI ) Telecommunications 17.9 -3.8% BDO Unibank Inc. ( OTCPK:BDOUY ) Banking 16.8 0.9% Ayala Corporation ( OTCPK:AYALY ) Conglomerate 27.6 45.6% JG Summit Holdings CL B ( OTCPK:JGSMY ) Consumer Products 26 74.9% Universal Robina ( OTCPK:UVRBY ) Consumer Products 35.91 15.1% SM Prime Holdings Inc. ( OTC:SPHXY ) Real Estate 21.03 13.2% SM Investments Corp. ( OTCPK:SMIVY ) Consumer Products/Real Estate 24.56 3.5% Aboitiz Equity Ventures ( OTCPK:ABTZY ) Utilities 18.24 -12.6% Jollibee Foods Corp. ( OTCPK:JBFCY ) Consumer Products 38.37 14.8% Consumer Products Consumer spending has consistently been on the rise in the Philippines, which has greatly contributed to the growth of the economy. Business process outsourcing has meant substantial increases in consumer spending, and this industry is certainly on track for further growth; as of the first half of 2014, household consumption expenditure accounted for 73% of the country’s GDP . (click to enlarge) Although the industry certainly displays potential, and growth is clearly ahead, the valuation and financial performance of the specific companies should be considered. The valuation and growth demonstrated by the holdings of this ETF reflects that although there is potential, the current valuation is not extremely attractive. Growth of the individual companies has been considerable, while the true strength lies in the consumer products industry itself. The average P/E ratio for the holdings is 31.2. The average growth in net income in 2014 was 27.1%. For those wishing to gain exposure to this industry, it is significant to note that all four companies are listed on US exchanges; this provides investors with the opportunity to specifically invest in this industry, and even to cherry-pick an individual company that demonstrates the most potential. Of the four companies, JG Summit Holdings has the lowest P/E ratio of 26, and experienced the most growth, with an increase in net income of 74.9% in 2014. Real Estate The real estate industry demonstrates substantial potential and has been driven by business process outsourcing, increased economic growth, and increased consumer spending. The main forces driving this industry are the higher demand for office buildings, creation of townships outside of Manila, and growing numbers of retail centers. The two holdings for this ETF have an average P/E ratio of 28 and saw an increase in net income of 19.7% in 2014. While these holdings can be considered a strength of the ETF, investors will do well to consider other alternatives in this industry. Megaworld Corp. ( OTCPK:MGAWY ) is an attractive alternative, as it has diverse plans for expansion in this industry and a much more attractive valuation, with a current P/E ratio of 7.32. Utilities The utilities industry poses substantial risk and is not extremely attractive for investment. Although it only represents a small percentage of the fund’s holdings, this should be considered when determining whether or not to invest in the fund. Businesses in the Philippines face the risks of high costs and low reliability of utilities. Aboitiz Equity Ventures, the fund’s holding in this industry, was the worst-performing company, with a 12.6% decrease in net income in 2014. However, the threat of the adverse performance of this industry can be considered somewhat negligent, as only 14.34% of the fund’s assets are invested in this industry. Telecommunications The telecommunications industry is an extremely important component of its economy and contributes approximately 10% of the country’s GDP . Growth of the industry began to slow in 2012 and 2013, although it was still managing to grow slightly less than 10% annually. The telecommunications industry has substantial room for growth, as BMI has projected that mobile growth will average at 3.8% between 2015 and 2018. Although growth is diminishing, there is still potential for this industry to reach an unreached population. For example, as of 2014 there were only 7 million broadband subscribers, which only represents 7% of the population. Philippine Long Distance, one of the ETF holdings, is an option for investors wishing to gain exposure to this industry. Its valuation is relatively attractive, with a current P/E ratio of 17.85 , and it is relatively volatile, with a Beta of 1.28. Areas of concern include the fact that net revenue and net income have been declining since 2012, and that the company most recently saw a 3.8% decrease in net income in 2014. Conclusion The iShares MSCI Philippines ETF provides convenient exposure to the Philippines for investors who wish to profit off of the projected growth in 2015 and 2016. Favorable aspects of this ETF include exposure to the real estate, telecommunications, and consumer products industries. Moreover, the current valuation is somewhat attractive, and 8 of 10 of its top holdings experienced growth in net income in 2014. The main disadvantages of this ETF are the high valuation of the consumer products industry, its exposure to the utilities industry, and holdings in the real estate industry that are not optimal. Further opportunity may be found by investing in individual companies; these include Megaworld, Philippine Long Distance Telephone Co., and JG Summit Holdings. Although ETF exposure may not be the best course of action, the potential for economic growth in a variety of industries is substantial, and it could be a profitable endeavor. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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