World Economy

In Asia ratings game, guess who just jumped ahead?

The financial district of Makati City in Manila, Philippines.
Getty Images

The Philippines is now rated investment grade by three major credit ratings agencies – a status that puts the tiny Asian state ahead of its peers and should help protect it from any further emerging-market volatility, analysts say.

Moody's on Thursday lifted the Philippine sovereign credit rating by one notch to Baa3, citing firm economic growth, improvements in the fiscal position and political stability.

(Read more: Emerging markets to shake up Fortune 500 list)

The decision follows similar upgrades by Fitch Ratings and Standard & Poor's earlier this year and comes at a time when recent volatility in emerging markets has cast a cloud over the credit ratings outlook for Asian neighbors such as India and Indonesia.

"From a strategic stand-point, the Philippines is well-placed to benefit from "leap-frogging" Indonesia, and implicitly India, on a relative ratings dynamics," analysts at Mizuho Corporate Bank said in a note.

(Read more: Emerging markets thrive amid US shutdown)

"For Indonesia, touted as the next emerging-market Asian nation to achieve all-around investment grade status, slipping behind the Philippines was emphatic; S&P lowered its sub-investment grade outlook from "positive" to "stable" in May," they said. Indonesia has an investment grade rating from Moody's and Fitch but not S&P.

Concerns about a downgrade to India's credit rating meanwhile resurfaced after the Indian rupee sank to a record low against the U.S. dollar in August, although the currency has rebounded since then.

(Read more: Is India moving closer to a ratings downgrade?)

What's the big deal?

Why Philippines is shielded from taper storm
Why Philippines is shielded from taper storm

Investment grade status is considered important because it impacts how foreign investors perceive a country's assets. Some institutional investors, for instance, have a mandate only to invest in countries rated investment grade.

And while the move by Moody's was anticipated, analysts say it should still help Philippine assets outperform their peers in the coming months.

"Moody's finally raised the Philippines credit rating to investment grade, some six months after S&P. This would still provide additional positive support for the Philippine credit as some investors prefer to have all three rating agencies (holding the same views)," said Bank of America Merrill Lynch Economist Jojo Gonzalez.

Tim Condon, head of research for Asia at ING Financial Markets, noted the importance of Moody's giving the Philippine credit rating a positive outlook, something that raises the prospect of another upgrade in the months ahead.

"The sovereign is on a rating upgrade cycle," Condon said in a note.

Philippine stocks have shed about 6 percent of their value in the past six months, tumbling with other emerging markets amid jitters about an unwinding of U.S. monetary stimulus.

Earlier this week, the Asian Development Bank (ADB) upgraded its full-year growth forecast for the Philippines to 7 percent from 6 percent. It was the only Southeast Asian country to have its growth forecasts revised higher by the ADB.

The prospects of stronger growth compared with peers should help stocks and the Philippine peso outperform rivals, analysts said.

"We expect a significant retracement in the stock market's loss in the fourth quarter. We also expect the associated hot money inflows eventually to appreciate the peso," Condon said.

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC