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The Philippines: Asia’s bright star

Emerging markets may be struggling, but the Philippines is still looking bright. Here's one fund to buy in to the country's impressive growth.

Emerging markets are in trouble. But the Philippines is "still a bright star in a dim sky", says HSBC's Joseph Incalcaterra. For a long time the country was held back by corruption, tax evasion, low investment and government profligacy. In the past few years, the former "sick man of Asia" overcame its problems to become a stockmarket darling. But by early 2015, the upswing had begun to look vulnerable to a setback, says Assif Shameen of Barron's.

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"Nobody wants to pay 20 times forward earnings, no matter how alluring the fundamentals." So one positive to come from the China slowdown is that Filipino investments are now more appealing as stocks are down almost 20%, making them more affordable.

It's certainly worth a look. China's slowdown has devastated other emerging markets, but the Philippines has been shielded by its strong domestic economy. It is less reliant on exports than most of the region: foreign sales comprise under 30% of GDP. As a net oil importer, it has benefited from low oil prices. This has helped keep inflation at bay, allowing the government to keep interest rates at 4%.

Filipinos also send home $2bn a month in remittances, says Shameen, which helps fuel private consumption, while the country has carved out a niche in business process outsourcing, mainly for America. With English widely spoken, call centres now employ morepeople than their Indian equivalents. So while other emerging markets have been hit by the strong dollar, lower commodity prices and slower Chinese growth, these factors "provide a good tailwind for the Philippines", says Jojo Gonzales, director of Philippine Equity Partners.

Government spending has started to pick up, says Deutsche Bank, which should help sustain growth of more than 6% this year. The country has achieved sustained growth of at least 5% year-on-year for the past 14 quarters. To keep growing, the Philippines must focus more on investment, which, at just 22% as a share of GDP, is far lower than others in the region, says Capital Economics.

But things are looking up: the business environment and the nation's fiscal position have improved in recent years, so there is more money available and firms should be more confident of political and economic stability. "While success is by no means guaranteed, the prospects for investment look bright." Buy in via the db x-trackers MSCI Philippines ETF (LSE: XPHG).

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