Philippine stocks hit a nine-month high last week after the country's central bank delivered a surprise interest rate cut – its fifth in 2020 – in a bid to resuscitate the economy from the pandemic and recent run of typhoons.
- The country's central bank has cut interest rates for the fifth time in 2020 to stimulate economic growth following the pandemic and tropical storms.
- The iShares MSCI Philippines ETF (EPHE) broke above a pennant to close above major overhead resistance, suggesting further upside potential from current levels.
- The Global X FTSE Southeast Asia ETF (ASEA) formed a golden cross buy signal, which often marks the start of a new uptrend.
The Bangko Sentral ng Pilipinas (BSP) reduced the interest rate on its overnight reverse repurchase facility by 25 basis points to a record low of just 2% while slashing overnight rates on deposit and lending facilities to 1.5% and 2.5%, respectively. "People will be much more likely to have confidence to get into the financial system again when interest rates are on the accommodative side," said deputy governor Francis Dakila. "Thursday's cut will help speed up process of recovery," he added, per Bloomberg.
U.S. traders can gain exposure to Philippine stocks through the two exchange-traded funds (ETFs) outlined below. Let's take a closer look at each fund's metrics and turn to the charts to identify possible trading opportunities.
iShares MSCI Philippines ETF (EPHE)
With assets under management (AUM) nearing $120 million, the ETF has an investment mandate to provide similar returns to the MSCI Philippines Investable Market Index. Filipino real-estate giants SM Prime Holdings, Inc. (SPHXF) and Ayala Land, Inc. (AYAAF) lead single stock allocations at 12.95% and 10.5%, respectively. Traders should consider using limit orders to combat the ETF's slightly wider spreads and sporadic liquidity. As of Nov. 23, 2020, EPHE charges a 0.59% management fee, yields a modest 0.68%, and is trading 15.5% higher over the past month. Year to date, the fund has slipped around 5%.
Since breaking out from an ascending triangle and the 200-day simple moving average (SMA) last month, the fund's share price has continued trending sharply higher. The shares broke out Friday from a narrow pennant pattern to close above crucial overhead resistance at $32.35, suggesting further upside potential from current levels. Those who take a trade here should look for a retest of the November 2019 high at $36.48 with a stop-loss order placed just below the pennant pattern.
An ascending triangle is created by price moves that allow for a horizontal line to be drawn along the swing highs and a rising trendline to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns.
Global X FTSE Southeast Asia ETF (ASEA)
While not strictly a Philippine-themed ETF, the fund allocates 6.32% of its $21 million asset base to the country. Top companies included in its portfolio of 42 holdings include DBS Group Holdings Ltd (DBSDY), Oversea-Chinese Banking Corporation Limited (OVCHY), and PT Bank Central Asia Tbk (PBCRY). Around 12,500 shares exchange hands most days on an average 14-cent spread, making it worthwhile here also to use limit orders to avoid excessive slippage costs. ASEA has a competitive 0.65% expense ratio and is up 17.36% in the past month while trading 12.10% lower on the year as of Nov. 23, 2020. Investors also receive a healthy 3.32% dividend yield.
The ETF's share price started its recent leg higher from a multi-month downtrend line in early November. Furthermore, Friday's cross of the 50-day SMA above the 200-day SMA generated a golden cross buy signal, which often marks the start of a new uptrend. Those who intend to trade the bullish short-term momentum should look to book profits at $15.35, where the price may run into resistance near a crucial two-year horizontal trendline. Manage downside risk by cutting losses if the fund closes beneath last week's low at $13.75.
In technical analysis, a horizontal line is often drawn on a price chart to highlight areas of support or resistance.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.