HSBC: political fears to weigh on peso
POLITICAL UNCERTAINTY could keep prospective foreign investments to the Philippines on the fence and prolong the peso’s weakness, banking giant HSBC said in a report, with the currency seen ending the year at the P49 level against the dollar.
Policy shifts following presidential succession in the Philippines and the United States will likely aggravate market volatility for some time, fueling continued depreciation of the peso, HSBC Global Research said.
HSBC analysts said the peso is likely to trade P49.40 against the greenback by yearend, which if realized would be the weakest since Dec. 2, 2008.
By end-2017, the bank expects the local unit to close even weaker at P50.70 to the dollar.
The peso has been treading seven-year lows in the past few weeks, closing P49.35 versus the dollar in Wednesday’s trading.
BSP Governor Amando M. Tetangco, Jr. said on Monday that the peso has been moving in sync with regional currencies against the dollar’s strength, amid expectations that future US policies would lead to higher yields in the world’s biggest economy.
HSBC said market jitters over political developments could likewise affect foreign direct investments (FDI), particularly due to sharp turns in policy under President Rodrigo R. Duterte.
“[ W] e believe heightened political uncertainty could delay FDI inflows coming into the Philippines, and with the current account surplus narrowing there is now greater room for PHP weakness and/or volatility,” bank analysts said in their Nov. 15 currency outlook report.
The analysts said they initially viewed the political succession of a popular leader could be “positive” for the peso, especially in the face of the reform track set by Mr. Duterte’s socioeconomic agenda.
“However, we underestimated Duterte’s change in foreign policy: he has criticized the US — a long-time ally of the Philippines — and has pivoted to China despite previous tension surrounding the South China Sea,” they said.
“This, as well as his off-the-cuff comments, have unsettled investors and led to portfolio outflows hastening since August.”
Foreign portfolio investments, also called “hot money” for the ease by which these funds enter and leave markets, reverted to an $ 807.15- million net outflow in September, although the ninemonth tally stood at a $1.267-billion net inflow.
“The election of Donald Trump could actually mark a slight Uturn in US-Philippines relations. Duterte has appointed Trump’s business partner as the new trade envoy for the US,” HSBC added, referring to the appointment of Jose E.B. Antonio, president and chief executive officer of Century Properties Group, Inc. that built Trump Tower Manila.
He was appointed a day before the US presidential elections that saw Mr. Trump clinch a surprise victory.
Economists have flagged that the Philippines had the “most to lose” should Mr. Trump carry out the “America first” policy he announced during the campaign, as his proposal to drive immigrants away and discourage outsourcing to free up jobs for US residents are expected to imperil remittances from Filipino workers abroad and sales of the business process outsourcing sector — two key pillars of domestic demand.
Debt watcher Moody’s Investors Service said an about- turn in current US policies would be credit negative for the Philippines, although the country has kept “Baa2” rating — one notch above minimum investment grade — with a “stable” outlook.
Overall, HSBC expects an even stronger dollar, seen as the safehaven currency with political developments now hogging the limelight even for investors.
“The election of Donald Trump as the next US president has significant implications for FX ( foreign currency) markets. In our view, the USD will now be stronger than we previously anticipated, a reflection of both broader market uncertainty and higher US rates,” the report read.
“Now, the political driver is dominant and uncertainty will remain high. In that environment, the USD will prevail and emerging market foreign currencies will suffer.” —