Before we resume our regular stock market series and discuss the strengthening of the Peso. This is an important factor that plays a vital role in determining the economic outlook of our country. This will also help you decide when considering investments.
When the dollar-Peso Exchange rate was still P44+ to a dollar, I told my dad to dump all his dollar, exchange it for peso and put it in mutual funds.
I don’t know if my dad has listened to my advice, but now the exchange rate is now nearing P 40.00 to a dollar.
For those of you living in the Philippines and who has still dollars in their accounts, it is not yet too late to exchange it to avoid loosing more in the months or even years to come. Except if something really bad happens to our political scenery or if there is a global economic catastrophe that will affect the world market, there is no reason that the Peso should continue to stop appreciating.
I am not saying this because I am an expert in economics or that I know all the nuisances of business and finance. I am giving this fearless forecast because of what the experts say. Almost all experts agree that the Peso will continue to slide down in the months to come, they just could not agree as to the figures. Even our own Bangko Central gave a conservative 43 to 1 forecast in October 2007 by year end, however the pesos hit the 40 – 41 level by December.
Some experts give the fearless forecast of 37 to 1 by as early as the 1st quarter pf 2008 and read this “Albay Governor Joey Salceda, a former economic adviser to President Gloria Macapagal-Arroyo, predicts that in five years the peso-dollar exchange rate will drop to this level ($ 25 is to 1) on the back of strong economic growth and continuously rising remittances (from OFWs),” (according to the headline story the October 6 issue of Standard Today) More conservative experts peg it at P 39 to a dollar by 2008 and most would agree that it would stay in the P 30 +++ level by 2009. Some give a higher than P 35 prediction while others give a lower ceiling prediction saying that the peso will hit below P35.00.
Experts have conflicting views and figures since predicting the actual figures is very hard. There are thousands of factors that could determine the rise and fall of the Peso. Experts use statistics to give the forecast, while statistics does not give an exact result; nevertheless it gives a pattern for experts to base their forecast on. I do not even dream of every burdening myself in trying to come up with a “forecast.”
Regardless on what figure the Peso to dollar-exchange rate will be, you can be sure that there is no accurate prediction but the pattern is that it is going down. The Philippine peso has been the strongest currency in Asia in 2007, gaining about 18 percent against the dollar. The Peso will keep on getting stronger in the months to come mainly of the following reasons:
1.) The law of supply and demand – Remember that the exchange rate is based on the law of supply and demand. The law simply sates when supply is up, prices go down when supply is low, prices goes up. Similarly when demand is high prices goes up and when demand is low prices go down. The more supply of dollars there is, the cheaper it will be. The less demand of dollar there is, the price for getting dollars goes down also. And why is the supply of U.S dollars rising in our country? Consider this:
a.) Increase in OFW remittances – Almost every year the amount of money that overseas Filipino workers send home keeps on growing, and it will keep on growing in the years to come. An estimated eight million Filipinos, out of a population of more than 80 million, have left the country to seek work abroad. There are currently more than 11 million Filipinos worldwide. An increase in the number of Filipinos leaving the country for work is expected to continue and as this continues to grow, so does remittances. This steady and additional inflow of U.S dollars helps strengthen the Philippine Peso. You might be wondering why that is so.
b.) Inflow of Foreign capital – The Philippines is ripe for investment. The Bangko Central has reported that from January-September, “foreign direct investments (FDI) net inflows aggregated US$1.9 billion, higher by 22.3 percent compared to the US$1.6 billion recorded in the same period a year ago.” And why are investors investing in our country when they use to snub it before as it has been called the “Sick man of Asia”? Well mainly due to a lot of factors. Among those are, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. A substantial portion of foreign investments went to mining, real estate and manufacturing. The effect of this is bullish stock market, low inflation rate, high GDP etc. These factors continue to produce a good business environment for investors as this trend continues more investors are expected to come in. With this “hot money” continuing to pour into our country, the supply of dollar continues to rise.
c.) Tourist spending – I heard on the radio that Tourism secretary Ace Durano was very happy that the reached the target number of tourist arrival as early as October this year. According to reports Tourist arrival rose 8.6 percent from a year earlier to 2.5 million. The money tourists spend in the country helps push higher the supply of U.S dollars in the country.
d.) Export earnings – Exports has also grown despite the appreciation of the Peso. (As this includes service exports such as call centers and other B.P.Os) However exports has not been growing well because of the appreciation of the Peso. Exporters earnings has been affected since they are loosing money as they are paid in U.S dollars and when the exchange it to Peso, they are given a lesser value than what was paid to them before.
e.) Political stability – Regardless of what other people say, in my own personal opinion we have somehow reached a certain degree of political stability. Its not because we have matured as a people, it is mainly because people are tired of political bickering, political mudslinging and engaging in activities that call for the resignation of the president. This is evidenced by sceneries that paint our current political landscape. Events like the Manila Peninsula rebellion seems to indicate that the people are tired of all the political mumbo jumbo. The popularity of the political tele-novela has ended, its rating has gone down and people are now more interested in a new tele-novela, – ECONOMIC GROWTH. Activities that are political in nature has been mostly snubbed by the markets. Although the political stability that we have experienced is not as “stable” as in other countries yet the ability of the Arroyo administration to maintain its grip and influence has somewhat create a stable political environment.
2.) Weakness of the U.S dollar – The peso’s appreciation also got a little help from the weakness of the U.S dollar. The U.S economic woes aggravated by its sub prime mortgage problem has been continuing to affect the U.S economy and further dragging the U.S dollar down. One man’s meat may be another man’s poison. This in turn has given the chance for the Peso to appreciate.
With these in mind, what does this mean for us the common Filipino? Well the message is clear. Dump your dollars and invest them in an investment vehicle such as the stock market and mutual funds that will give you a higher return in order that you may cope up with your “losses” for your failure to cash in your dollars the moment it started to go down. The year 2007 closed with the Peso being named as the best performing currency in Asia. This trend is more likely to continue and a stronger peso is very much more likely in the month or even years to come.
News flash: When I opened the news today (1/8/2007) the Philippine Peso – U.S Dollar Exchange is now 40.99 to $1
Update: 6/10/08 – Our economic landscape has recently changed. With our economy being rocked simultaneously by the Oil and Food crises, a stronger Philippine Peso would be very impossible to achieve as of this moment. Expect a weaker Philippine Peso instead somewhere at $ 47 to $ 50 by end of 2008