INVESTORS SHIFT TO DOLLAR INVESTMENTS AS INFLATION HEDGE

More investors are shifting to dollar-denominated instruments amid the historic rise of the greenback, whose strength would likely continue despite the seasonal jump in overseas remittances toward the end of the year, Ng family-led Asia United Bank (AUB) said.

In a statement on Tuesday, the lender noted “pentup demand” for its gold and dollar fund, or GDF, which targets the broader retail investor market.

“Dollar-denominated assets should be favorable when the US dollar exchange rate is strengthening, especially if it is on account of increasing interest rates, as the case is today,” said Antonio Agcaoili, executive vice president and head of treasury at AUB.

Rising US rates

“The US Federal Reserve has made it clear it is on a path of sustained rate hikes. Until it is convinced that the threat of runaway inflation is completely eradicated, the dollar will remain elevated and reach historic highs,” he added.

The Philippine peso has depreciated against the US dollar by about 12.5 percent so far this year.

Experts such as Michael Ricafort, chief economist at Rizal Commercial Banking Corp., have called the peso’s drop “overdone” relative to the narrowing interest rate differential between the Philippines and United States.

Ricafort said they continue to maintain a “wait-and-see” approach on any additional government measures, which includes intervention aimed at supporting and stabilizing the domestic exchange rate.

Insufficient remittances

Meanwhile, the influx of overseas Filipino worker (OFW) remittances in the fourth quarter may fail to significantly prop up the peso as “the demand for foreign exchange is much bigger than the amount coming from OFWs,” Agcaoili noted.

“Thus, local investors in search of higher-yielding assets will be in good position to load up on US dollar assets,” said Chua, AUB senior vice president and head of trust.

“With expectations for interest rates to continue to rise in the near term, the GDF’s net asset value will remain depressed. However, as prospects for a US economic recession rise, we expect the US Fed to end its hawkish policies soon,” Chua said.

“This, in turn, will result in a more stable interest rate environment and will allow the fund to accrue at high yields. As such, we see the current situation as a good opportunity for our clients to start accumulating investments in the GDF and expect to reap the benefits from their investments over the next two to three years,” he added.