Philippine Peso Weakens for a Third Year on Fed, Stock Outflows

  • Overseas funds net sellers of stocks for first time since 2008
  • Remittances, improving growth to support currency in 2016: BDO

The Philippine peso completed its third straight annual loss as global funds fled local stocks and tightening monetary policy in the U.S. boosted the dollar.

Foreign investors sold $1.2 billion more shares than they bought this year through Dec. 28, contributing to the Philippine Stock Exchange Index’s first loss since 2008. The peso sank to a six-year low this month as the Federal Reserve raised borrowing costs for the first time in a decade. Prospects of faster economic growth and robust remittances from overseas workers will support the Southeast Asian nation’s currency in 2016, according to BDO Unibank Inc.

The peso slumped 5 percent in 2015 to 47.06 a dollar in Manila, prices from the Bankers Association of the Philippines show, capping the longest stretch of annual declines since 2004. The currency rose 0.2 percent on Tuesday, with local markets shut Dec. 30 and 31 for public holidays. A gauge of dollar strength has risen 8.4 percent this year.

“The peso reflects the strong dollar,” said Jonathan Ravelas, chief market strategist at BDO Unibank in Manila. “We’ve been seeing higher levels for the dollar but the peso remains stronger compared to other currencies in the region due to strong fundamentals.”

Any further weakening of the peso will probably be short-lived, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in a radio interview over the weekend. President Benigno Aquino’s economic team is counting on consumption and state spending to boost growth to 6.9 percent this quarter, from 6 percent in the July-September period, as the outgoing leader seeks to strengthen his infrastructure legacy and boost the resilience of one of Asia’s fastest-growing economies.

BDO Unibank’s Ravelas expects the peso to trade in a range of 46.50-48.50 per dollar in 2016. The presidential elections in May, the extent of U.S. monetary tightening and the response of China’s economy to policy makers’ stimulus will be the major factors impacting the peso next year, he said.

Before it's here, it's on the Bloomberg Terminal.