ING Bank says strong peso trend could last for 2 years
Published on Monday, 08 October 2012 00:00
Local exporters, overseas Filipino workers (OFWs) and others who earn in
foreign currencies may have to get used to seeing a strong peso, at
least in the next two years, as the Philippines prepares to join the
league of nations with investment-grade credit ratings.
Johnson Sia, Head of Financial Markets at the Manila branch of Dutch
financial giant ING Bank, said recent events have led to a more
favorable outlook on the Philippine economy and this could make the
local currency advance further against the US dollar.
Sia cited events such as Standard & Poor's move lifting the Philippines'
debt rating to BB+ (one notch below investment grade) in July,
improvement in the balance of payments, a relatively benign inflation, a
record-high stock market, all-time-low government bond yields, and
stronger growth prospects.
"There's no question that the continuous appreciation of the peso is
based on solid economic fundamentals and there is a growing expectation
that this trend will continue. This means exporters need to face the
reality that having a strong peso is now inevitable and they must know
how to adapt to remain competitive in the global markets," he said.
The Philippine peso remains one of the best-performing Asian currencies
year-to-date.
Sia estimated that at least 80 percent of the currency's strength came
from fundamentals such as "having a good Philippine story" and the
continuous influx of foreign flows, including those from OFW remittances
and higher BPO receipts.
Some companies may also want to take advantage of the strong peso
outlook by leaving their foreign exchange exposures un-hedged or by
borrowing in US dollars although this is not something that Mr. Sia
encourages.
"Local currency borrowing rates are at their all-time low, and the cost
of hedging foreign exchange exposures are at their cheapest as well.
Companies should, therefore, just borrow in pesos. For those with
existing dollar obligations, lock-in the forex gains by hedging or
redenominating these into pesos," Mr. Sia advised.
"Forex exposures translate to swings in a company's income and that is
not something that equity analysts like. At the end of the day,
companies should focus on their core enterprise and areas of expertise,
and have to realize they are not in the business of forex speculation,"
he added.
He said market players see the much-anticipated investment grade rating
for Philippine credit happening "sometime by the middle of 2013." While
some felt this has already been factored in by investors, Mr. Sia said
this could still result in a further rally in the Philippine markets.
"There are a lot of funds out there that only invest in investment-grade
debt or are allowed to invest only on an index of investment-grade
instruments," he explained.
"Two years is a safe bet that the market trend we have now would
persist," said the ING Bank executive.
Established in 1990, ING Manila is the first foreign bank to be granted
a universal banking license. It provides multi-product financial
services to international and local clients. The awards it has received
from various international and local award-giving bodies are a testament
to ING Bank's strong franchise in local debt capital markets, loan
syndications and corporate finance.
ING is a global financial institution of Dutch origin offering banking,
investments, life insurance and retirement services to over 67 million
private, corporate and institutional clients in more than 40 countries.
With a diverse workforce of 94,500 people, ING is dedicated to setting
the standard in helping our clients manage their financial future.
In Asia, ING banking activities cover both commercial and retail
banking. Its Commercial Banking division conducts a wide range of
international financial services, offering corporate finance, financial
markets, debt capital markets, corporate and structured lending, and M&A
advisory services to meet clients' needs.
ING Commercial Banking Asia is present and and active in 14 major
economies, namely Australia, China, Hong Kong SAR, India, Indonesia,
Japan, Malaysia, Mongolia, the Philippines, Singapore, South Korea,
Taiwan, Thailand and Vietnam.
ING Retail Banking operations in Asia include a 13.64 percent stake in
Bank of Beijing, China; a 44 percent stake in ING Vysya Bank, India and
a 30 percent stake in TMB Bank, Thailand as well as a 100 percent stake
in ING Direct in Australia.
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