Philequity launches first MSCI Philippines fund

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The local equity market seems to be recovering this year after falling 16% in 2018.

Manila-based fund manager Philequity has launched this year an index fund that follows the MSCI Philippines Index, according to a statement from the firm.

“Our latest offering will enable retail clients to invest in a fund which mirrors the performance of foreign portfolio managers,” Wilson Sy, director at Philequity, said in a statement.

He explained that unlike other index funds that follow the 30 components of the Philippine Stock Exchange Index (PSEI), the MSCI Philippines Index only tracks 23 companies that foreign investors can invest in.

The MSCI index includes a foreign inclusion factor, which limits the amount of a company’s stock that a foreign fund can buy, while the PSEI does not. As a result, companies that dominate the local index may have very small weightings in the MSCI Index.

There are at least 19 equity index funds in the country, 13 of which follow the PSEI, according to data from the stock exchange and the Trust Association of the Philippines. The remaining ones invest offshore and track a foreign index.

Market recovery?

The Philippines was one of the worst-performing markets among emerging markets last year, according to data from FE Analytics. For the full year 2018, the MSCI Philippines Index was -16.13% and the MSCI Emerging Markets Index was -14.22%.

However, the local market appears to be slowly recovering, with the Philippines index outperforming emerging markets since the start of 2019.

Source: FE. Index NAVs have been converted in US dollars

Sy believes a number of factors contributed to the market’s recovery, which include below-than-expected inflation figures in December, lower oil prices and the strengthening of the Philippine peso.

However, shares of Philippine banks, along with other financial companies, fell today after reports of Korean shipbuilder Hanjin seeking rehabilitation from courts, according to local media reports.

Financials account for the largest sector weighting in the MSCI Philippines Index, which is at 31.5%, according to the index’ factsheet.

At least five of the country’s largest banks – four of which are listed companies – collectively lent around $412m to Hanjin, according to the reports. However, the country’s central bank, the Bangko Sentral ng Pilipinas (BSP), said that those loans accounted for just 0.24% of the country’s gross loans, adding that it will not adversely affect Philippine banks.

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