Best Investments 2013: Buy the Philippines Top-Performing Emerging Market of Q1

While the Standard & Poor's 500 Index 10% first-quarter gain was great, it wasn't the world's best.

One of the standout performances in 2013's first quarter was in a market that's off many investors' radar screens: the Philippines.

The Philippine stock market, valued at about $236 billion, rose by 17.8% in the first quarter.

Money Morning's Global Investing Strategist Martin Hutchinson told us to invest in the Philippines back in November. Hutchinson said the BRICs - Brazil, Russia, India and China - are no longer the best investments for overseas growth. Instead, it's time to focus on the true rising stars in the emerging world, like the Philippines.

As Hutchinson says, "With the right emerging markets, real growth is easier than you think."

Here's why the Philippines is expected to continue this growth in Q2.

The Best Emerging Market of Q1

The Philippines has been on the rise ever since the election of Benigno Aquino as President in 2010. Aquino's policies - to boost spending while cutting the fiscal deficit and attacking corruption - have led to a boom in both consumption and investment in the Philippines.

Last year alone, the Philippine economy grew at a robust 6.6%, up from just 3.9% in 2011. Among its Asian peers, this puts it behind only China and Thailand.

The World Bank forecasts the Philippine economy to stay strong. It predicts growth of 6.2% this year and 6.4% in 2014.

In March, the country won its first ever investment grade rating from Fitch. The ratings agency raised the rating on Philippine government debt from BB+ to BBB-. It cited the country's resilient growth, strong fiscal management by the government ("governance reforms") and solid policies by its central bank to control inflation.

And according to the Financial Times, Fitch also said that the country's external balance sheet was similar to countries with an A rating rather than those with BB or BBB ratings. No surprise then that the Philippine peso is Asia's best performing currency over the past year, rising 5% versus the U.S. dollar.

The Philippines may receive another ratings upgrade sometime in the first half of this year from Standard & Poor's. In December, S&P raised its outlook of Philippine government debt from stable to positive. It cited the stability of the Aquino administration and the country's economic growth.

Currently, S&P has the country rated one notch below investment grade.

When the upgrade happens, it will allow fund managers that can only buy investment grade bonds to buy Philippine government debt. In anticipation of this event, traders have already pushed the country's benchmark 10-year government bond yield down from 4.7% last October to 3.5% now.

Best Investments to Play Philippine Growth

Asian fund managers remain positive on the market. The head of equity capital markets at Religare Capital Markets, John Sturmey, told Bloomberg News, "We are very bullish on the Philippines for this year and the following years."

Sturmey forecasts gains of 20%-30% for 2013.

Paul Joseph Garcia, fund manager at BPI Asset Management - the Philippines second-biggest fund manager - is also bullish. He sees the economy expanding at near a 7% rate in 2013.

Garcia also believes the index may gain 29% this year to the 7,500 level. If so, the value of the stock market, for the first time ever, will exceed the size of the economy.

U.S. investors can easily track the performance of the Philippine stock market through an exchange-traded fund, the iShares MSCI Philippines Investable Market Index ETF (NYSEArca: EPHE). It's up about 18% so far this year.

One cautionary note: it is an expensive market, trading at about 18 times projected 12-month earnings. But the profit potential of EPHE is huge.

In his 2013 Emerging Markets Forecast, Martin Hutchinson delivered two other economies he ranks among the best investments to play emerging market growth. You can get those economies' names here. Forget About the BRICs Buy These Rising Stars Instead

Money Morning

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Noynoy Aquino — a Filipino or a Foreigner?

Letter to the Editor

10 April 2013

Before the formal announcement of the of Balikatan exercises 2013, US warships, drones and jetfighters had already been frequently visiting and freely strolling around the Philippine jurisdiction.

Last January 6, 2013, a farmer in Masbate was able to retrieve a crashed drone.  The US embassy admitted that the US Navy is using it for reconnaissance operations and clandestine missions.  No immediate action was made by the government.  In fact, the AFP supported the US embassy and set an atmosphere that aimed to perpetuate USA's aggression.

The issue about the toxic waste discarded in Subic waters alerted the country, yet remained unresolved.  The alarm heightened when the USS Guardian ran aground some 4,000 square meters of coral reefs in Tubbataha Reefs Natural Park in Sulu Sea which has long been declared a Wildlife Protected Area and a UNESCO heritage park.

Investigations were conducted but to guarantee if they're serious is still a question.  Up to this day, there were no perpetrators brought to the bars of justice.  Justice is elusive to the affected residents in Subic and to Ahbam Juhurin, the fisherman who died during the routine maritime activity of Joint Special Operations Task Force-Philippines and Philippine security forces in Basilan.  Indeed, the Aquino regime has no backbone in asserting the country's sovereignty, in protecting the country's patrimony and in providing security for the people.

As of this moment, despite the intense friction between North Korea and US-backed South Korea, Aquino never put a second thought in participating in Balikatan exercise that permitted US troops with their weapons of war sent here in the Philippines opening the country to perilous possibilities of inclusion in the declared war.

The US troops' humanitarian projection is no less than lie.  They wanted to strengthen US bases in Southeast Asia in order to control flow of oil and other natural resources, serve as watchdogs looking after other developing countries that impose threats to the US economy, defeat the firmly established socialist system of economy in DPRK, and kill the patriotic movements within their colonies that advance sought for liberation.

This particular careless act of Aquino gained criticisms and condemnations from the broad masses.  How could he place the Philippines in such possible danger to think there are a number of internal issues in the country that urgently need to be discussed and resolved?

In the North and South Korea dispute, the Philippine president's bias is loud and evident.  He has been so attentive in giving speeches of support to South Korea while during the Sabah dispute, we can recollect his long silence and leaning to the Malaysian government despite the extensive killings of Filipinos in Sabah.

Well then, clearly, we can therefore conclude that Noynoy's boss is not his compatriots but the foreign, imperialist, US.  Had he been truly a public servant of the Filipinos, as what he used to blub before he was elected, Hacienda Luisita and all other vast lands owned by big landlords should have already been given to our poor peasants.  Had he been truly a servant of poor Filipinos, he would have established national industries that would provide job opportunities to the Filipino community, he would have put as his top priority the provision of accessible basic social services.

For reference:

Mariel Moralde

Spokesperson

Anakbayan UP Mindanao

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