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The rapid rally of the Philippine Peso last year which made it the best performing currency in Asia will not be seen this year, according to multinational bank HSBC.

Later this year, the Peso is expected to depreciate further to P43 : $1 before settling at P42 by year-end. HSBC said that rising inflation in the country is a major factor why currency buyers might opt not to select the Peso this year. They are yet to see whether the monetary policy response of the Bangko Sentral ng Pilipinas is appropriate.

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The Philippine Peso is Asia’s best performing currency of 2007, closing 18.8% higher at P41.28 at the end of last year.

The runners-up were: Indian Rupee (which grew 12% in 2007); Thai Baht (7%); Malaysian Ringgit (6.4%); Chinese Renminbi (6.88%); and Singapore Dollar (5.9%).

But the buck does not stop there. The Philippine currency is expected to further strengthen in 2008, with most market watchers predicting that the peso will stabilize below the P40-level. One analyst even predicted that the peso will touch P35 this year.

Below is a collection of prediction of the Peso-Dollar exchange rate in 2008:

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Yesterday, December 28, marked the last trading day in Philippine financial markets.

We take time today to briefly recap the financial figures of the year 2007 that matter to investors, traders, and analysts with interest in the Philippines.

2007 PSEi growth: 21.4%
2006 PSEi growth: 42.3%

The 30-company Philippine Stock Exchange Index (PSEi) ended a turbulent year up by 21.4%. This means that for every P100 invested in the index, the 2007 full-year gross profit was P21.40.

An exceptional performance, indeed, but not as stellar as the 2006 performance of the stock index which surged 42.3%.

Peso-Dollar Exchange Rate, end-2007: P41.28 : $1
Peso appreciation vs. US Dollar in 2007: 18.8%

The Philippine Peso is now considered the best performing currency in Asia in 2007 after it appreciated by almost 19% versus the US Dollar.

The peso rise both had positive and negative effects on the economy. On one side, it helped mitigate the impact of increasing oil prices. Had the peso not appreciated, commodity prices would have exorbitantly risen due to the ever-increasing price of oil in world markets. On the other hand, the rising peso translated to lower purchasing power especially for families of Overseas Filipino Workers (OFW). Those earning in dollars are now getting less pesos compared to a year ago.

Next week, we’ll post detailed analysis of the stock and mutual funds performance in 2007 and also tips for OFWs and overseas Filipinos on how to deal with the falling US dollar.

The Philippine Peso might reach P41.50 to the dollar by end-2007, and can further appreciate to P37.50 next year, according to CitiGroup Inc.

The global banking giant said the continuing rise of the peso will be caused by the robust flow of remittances from overseas Filipinos, a weak US dollar, an optimistic economic outlook for the country, and sustained government financial consolidation.

The same report noted, however, that the peso’s rise might be tempered in 2009 partly due to the upcoming presidential election in 2010.

The report published by CitiGroup entitled “Asia economic prospects for 2008″ says it is most bullish on the Philippine peso, the Indian rupee and Chinese renminbi among emerging Asian currencies for the coming years.

The prediction comes in the heels of another estimate by the chief investment officer of Sunlife of Canada who expects the peso to rise to P38 by 2008.

On December 6, the Philippine currency closed at a 7 1/2 year high of P41.88 to the dollar supported by strong remittances from overseas Filipino workers ahead of the Christmas holiday.

To those earning in or holding US dollars, brace yourself because the Philippine Peso might appreciate some more and even increase to P38 by next year.

That’s according to a BusinessWorld article published today:

The peso may appreciate towards P41.50 per dollar by year end and to as much as P38 by early 2008 as dollar remittances from overseas Filipino workers (OFWs) and inflows from the asset sale of local firms surge.

“The surge of dollars gives support to the thought that the peso will be stronger than what it is today… It’s a more sustainable trend right now,” Michael G. Manuel, chief investment officer of Sun Life of Canada (Philippines), Inc. told reporters yesterday.

Mr. Manuel attributes the possible appreciation of the Philippine currency to the sale of assets by local companies, increased remittances of Overseas Filipino Workers (OFW), and expected interest rate cut of the US Federal Reserve.

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Market-moving news for the week ended October 5, 2007:

BSP cuts key interest rates

The Bangko Sentral ng Pilipinas (BSP) reduced the overnight borrowing rate and overnight lending rate by 25 basis points to 5.75% and 7.75% from 6.0% and 8.0%, respectively, during its Monetary Board meeting last 4 October 2007. The Monetary Board adjusted the key policy rates for the second time this year. The BSP considered the benign inflation outlook in its decision to cut its key policy rates. The central bank noted that risks to inflation remain but these are mitigated by the stronger peso that provides a buffer against rising global commodity prices, and by recent policy measures that eases the impact of strong foreign exchange inflows on domestic liquidity. 

Peso breaches P44 level 

The peso breached the P44:US$1 level and closed the week at P44.75 per dollar. The close was 0.64% higher than the previous close of P45.04 per dollar on 28 September 2007.

Inflation rate rises 

Inflation rate picked up to 2.7% in September from 2.4% in the previous month. This brought the average inflation for the first nine months of the year to 2.6%. The increase in inflation rate was due to the accelerated price increases of food, beverage and tobacco, and services to 3.5% and 2.4% from 2.5% and 1.8%, respectively, in August. Meanwhile, core inflation went down to 2.7% from 2.9% in August.

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Market-moving news for the week ended September 21, 2007:

T-bill yields fall

Yields of the 91-day and 182-day Treasury bills offered by the government slid during the auction held on September 24, 2007. The 91-day Treasury bill fetched a lower rate of 3.759% compared to the previous auction’s 3.769%. The rate of the 182-day T-bill likewise fell to 4.832% from 4.842%. Meanwhile, the rate of the 364-day T-bill inched up to 5.643% from 5.607%. Total tenders amounted to P9.6 billion against the government’s offer of P3.4 billion.

Domestic liquidity growth slows down

Domestic liquidity growth slowed for the fourth straight month in August to 14.9% from 18.7% in July. Liquidity peaked at 26.3% in April of this year and decelerated to 20.5% and 19.4% in May and June, respectively. The growth in liquidity was tempered by the decrease in domestic assets of depository corporations.

RP external debt decreases

The total external debt of the country went down by 1.9% to $53.0 billion as of the second quarter of the year from $54.0 in the previous quarter. The contraction in external debt was mainly due to the increase in investments of local banks in Philippine debt papers issued abroad as well as the negative foreign exchange adjustments. The external debt ratio or its percentage of the GNP likewise decreased to 37.8% from 41.7% in 2006 and 46.5% in June last year.

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Market-moving news for the week ended September 21, 2007:

US Federal Reserve cuts interest rate

The Federal reserve lowered its federal funds rate by half a percentage point or 50 basis points to 4.75% from 5.25% on September 18, 2007. The higher-than-expected rate cut by the Fed was intended to forestall the adverse effects on the economy arising from the tightening credit conditions.

RP deficit lower due to continuing budget surplus

For the third straight month, the government posted a budget surplus amounting to P13.9 billion in August. This brought the cumulative deficit incurred by the government for the first eight months of the year to P25.5 billion, lower than the P34.2 billion deficit posted in the same period last year. The surplus for the month was mainly due to the improved revenue collections of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), which increased by 12.5% and 14.7%, respectively, from the same month last year.

ADB raises Philippine GDP forecast

The Asian Development Bank (ADB) raised its Gross Domestic Product (GDP) forecast for the Philippines to 6.6% from 5.4% in 2007 and 6.0% from 5.7% in 2008. The improved outlook was due to the country’s stronger than expected economic growth for the first half of the year and the lower than projected inflation. For 2008, the ADB expects that growth will be sustained, albeit slower, driven by the growth of services sector and increase in consumption boosted by remittances.

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Combined earnings of domestic companies listed in the Philippine Stock Exchange (PSE) jumped 41.4% to P148.75 billion during the first half of the year, according to a PSE study.

The study was based on the unaudited financial statements of 229 listed companies, submitted to the PSE as of September 6, 2007. Those that submitted financial statements included firms that belong to the SME (small- and medium-sized enterprise) Board.

During the first half of the year, the PSEi, which is the local stock market's main barometer of stock price movements, went up by 22.7% from its level at the end of 2006.

The PSEi also went up by 42.3% last year, by 15% in 2005, by 26.4% in 2004 and by 41.6% in 2003. 

The combined gross revenues of the listed companies also went up by 15.1% to P1.18 trillion during the first half of the year from P1.02 trillion a year earlier. 

News Source: Philippine Stock Exchange

Market-moving news for the week ended September 14, 2007:

Philippine exports rise

Exports rose by 4.5% in July to $4.196 billion from $4.016 billion a year ago due to the increased shipments of electronic products such as semiconductors, automotive and consumer electronics. Electronics, which accounted for 59.2% of total exports, increased by 5.1% to $2.484 billion from $2.364 last year. Other export products that also recorded strong increases were iron ore agglomerates, coconut oil, and ignition wiring sets, which exports surged by 105.4%, 103.1%, and 45.3%, respectively.

T-bill rates up

Benchmark interest rates rose during the auction held on September 10. Yield for the 91-day T-bill inched up to 3.769% from 3.731% in the previous auction while the 180-day T-bill fetched a higher rate of 4.842% from last auction’s 4.805%. The government rejected all bids for the 364-day T-bills as banks sought higher rates for the one-year paper. A total of P2.5 billion worth of short-term securities were sold against the total tenders that amounted to P6.9 billion.

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