Philippines Interest Rate Unchanged: ETFs In Focus

The Philippines central bank left its benchmark interest rate intact at 3%, in line with market expectations. The premier banking authority expects inflation to average 3.2% this year and the next, which is within their target band of 2-4%.

Economic Data

Philippines witnessed impressive economic growth in the second quarter of 2017. Per the National Statistics Agency, GDP grew 6.5% year over year in the second quarter compared with 6.4% in the first quarter. It also beat a Reuters forecast of 6.2%.

Consumer prices increased 3.1% year over year in August compared with 2.8% in July. This was above market expectations of a 3% increase. Moreover, it expanded 0.3% on a monthly basis, same as previous month and above market expectations of a 0.2% increase.

Risks Involved

Foreign investment plays a pivotal role in determining the economy’s success. However, the country’s president Rodrigo Duterte's deadly war on drugs may cause foreign investors to flee. Last month, Philippine police killed 32 people in a series of drug raids. This war against drugs has made the country’s economic environment quite uncertain.

Duterte’s tax reform bill is expected to give a boost to tax revenue in order to fund his goals of infrastructure expansion. The administration has promised to increase infrastructure spending to 7.4% of GDP by 2020.

The senate issued a hugely modified version of the bill earlier this week. However, the markets seem to be optimistic now, owing to the progress in the tax reform, which led stocks to rally. The Department of Finance postponed the submission target of the second reform bill from October to January, as it focuses on getting it passed on time.

Let us now discuss the most popular ETF focused on providing exposure to Philippine equities.

iShares MSCI Philippines ETF (EPHE - Free Report)

This fund seeks to provide exposure to Philippine stocks primarily in the large cap segment.

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