A FUND asset management company sees the peso further sliding as the government embarks on a massive infrastructure program.
ATR Asset Management (Atram) Group chief investment officer Phillip Hagedorn forecasts the Philippine peso to settle between P52 and P56 against the US dollar, calling it the “new normal” for the Philippines.
“Of course, that would depend on the inflows and the demand,” said Hagedorn.
He noted that the country is embarking on a massive infrastructure project which would require dollars to buy construction equipment and materials.
“We are doing Build, Build, Build. Basically, this program would need to import everything. We don’t have enough cement, steel and other resources. All we have is people. So for us to realize this project, we need dollars to buy these resources, which is now causing the imbalance,” said Hagedorn. “Unfortunately, this (scenario) will be here for a few more years.”
While the Philippines is not immune to currency exchange volatility--with its neighboring countries like Malaysia and Indonesia also experiencing weaker currency and losing 20 percent of their currency value--the Philippines lost 20 percent of its currency value 18 months.
“I don’t think we will be able to see (an exchange) of P48 again in the near future,” said Hagedorn. “If you are an investor, you need to hedge on that.” The peso was tagged as one of the worst performing currencies in Asia. It ended 2017 with P49.93 to the dollar. Yesterday, it stood at P53.96.
A weaker peso is said to benefit the families or beneficiaries of the overseas Filipino workers, as dollars they send home will have higher value, which translates to high purchasing power.
Money sent home by OFWs from January to August this year stood at $21.2 billion. August remittances specifically dropped by 1.4 percent. The Bangko Sentral ng Pilipinas said the countries that contributed to the decline are the United Arab Emirates, Saudi Arabia and Qatar.
A weaker peso is also attractive for tourism. Hagedorn said the current exchange rate favors well, as it would be cheaper for foreign tourists to visit.
But for manufacturing, Hagedorn said it will be a double-edged sword, as the sector also imports raw materials prior to exporting finished goods overseas.
While it will help raise their profitability a bit, export players expect the favorable currency exchange to be temporary.
Ramir Bonghanoy of Bon-Ace Fashion Tools Inc. described it as a windfall profit, as the extra revenue will be offset by the rising cost of raw materials due to high fuel cost.
Pete Delantar of Nature’s Legacy Eximport Inc. also shares the same sentiment, adding that the “windfall profit” will only be enjoyed by the exporters for a month.
“Other supplies will immediately increase, especially the ones associated with oil or oil by-products,” said Delantar.
Rather than focusing on the performance of the peso, exporters have other serious issues to face, such as the growing competition in the global market in this digital age.
Bonghanoy said they are battling intense competition as Vietnam and Indonesia show strength by innovating their businesses, adopting new technologies to reach a wider market.