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Philippine Peso strengthens as local stocks and remittances of Filipino workers rise

JPM

The Philippine Peso closed on Monday at 41.025 to the USD, the highest level since March 2008, mainly due to a jump in remittances from overseas Filipino workers and the reported rise in consumer spending in the United States, the country’s major trading partner.

The last time the Peso closed stronger than the rate recorded Monday was on 7 March 2008, when it hit 40.85 Vs the USD.

Market analysts said the rise of the peso, along with other Asian currencies, could be the result of an increase in consumption of the United States, the world’s biggest economy.

The major contributory factor to the strengthening of the Peso was the US-denominated remittances from Filipinos living and working overseas.

A report on15 November by the Bangko Sentral ng Pilipinas, BSP, the country’s central bank, showed that personal remittances, the cash and non-cash items or goods sent by overseas Filipinos through formal and informal channels, rose 6% in September from a year ago to US$2-B.

This brought the 9-month remittance tally to US$17.3-B, + 5.7% Y-Y.

“Remittances remained resilient on the back of sustained foreign demand for skilled Filipino manpower and continued financial service innovations of banks and other financial institutions to address the remittance needs of overseas Filipinos and their beneficiaries,” the central bank said in a statement.

The BSP said that cash remittances, the ones coursed through banks, rose 5.9% to US$1.8-B in September, the highest monthly level recorded so far.

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Last year, overseas Filipinos sent home a record US$20.12-B, rising 7.2% from Y 2010 and exceeding the government forecast of 7% despite a slowing US economy and debt problems in Europe.

Major sources of remittances to the Philippines were the United States, Canada, Saudi Arabia, the United Kingdom, Japan, the United Arab Emirates, Singapore, Italy, Germany, and Norway.

The Philippine Daily Inquirer, a major Manila daily, quoted Jonathan Ravelas, market strategist for Banco de Oro, as saying that the growing remittances due to the coming Christmas holidays helped boost the value of the Peso against the USD.

Mr. Ravelas said expectations that the Philippine economy would post another favorable growth in Q-3 after expanding by 6.1% in Q-1 also boosted the appetite for Peso-denominated securities.

The BSP has said that it would continue keeping an exchange rate policy that provides for the exchange rate to be largely market-determined but would allow the BSP to intervene to prevent a sharp and sudden rise or fall of the peso.

The BSP said the extreme volatility of the exchange rate would be bad for businesses and the economy.

Market players said that were it not for the BSP’s dollar- buying in the market, the peso could have appreciated at a much faster rate.

Alongside the peso appreciation, the Philippine stock exchange also registered Monday an all-time high–the 29th this year.

Analysts said that the bullish performance of the local bourse could be the result of talks about banking merger and acquisition (M&A) that kept investor sentiment buoyant.

The main-share Philippine Stock Exchange index jumped 27.08 pts, or 0.49%, to a record finish of 5,579.42. The index also hit a new record intraday high of 5,585.09.

The upswing continued to be led by banking stocks, which perked up the financial index by 1.62%.

In a press briefing Monday, Gilbert Lopez, JP Morgan Securities Philippines Inc. executive director, said that while investors were positioning ahead of an upbeat 2013 for the Philippine economy, a big factor behind the stocks surge was banking M&A excitement.

“People regard the merger as something positive but they are kind of moving ahead because a merger is not sure yet,” Mr. Lopez said.

He added that reports on the impending merger between Bank of the Philippine Islands and Philippine National Bank led to a favorable outlook on the domestic banking sector and boosted the appetite for publicly listed stocks in the country.

JP Morgan has also picked the Philippines as one of its 3 most-favored stock markets for Y 2013, marking the 4th straight year that the local bourse is expected to outperform most of its regional peers.

“We are still very bullish for Y 2013,” Mr. Lopez said. The 2 other Asian markets seen by JP Morgan as top market picks for next year are Thailand and India, citing favorable demographics as a common denominator with the Philippines.