Dutch financial giant ING sees the peso gaining more ground in the next two years and the domestic economy moving toward a higher trend growth rate of 6-7 percent under the term of President Aquino.
In an economic briefing Friday, ING economist for the Philippines Joey Cuyegkeng also said that there was still some room for the local stock market to rise. But since valuations were “quite stretched” now, the economist said a “re-rating” was needed to give legs to a further run-up.
If the country’s first-quarter growth performance would exceed expectations and if infrastructure projects under the public-private partnership (PPP) framework would move forward in the next three to four months, he said these could add fuel to the bull market.
Re-rating refers to a change in view in stocks so as to trigger a change in valuations. If expected corporate earnings go up alongside a faster economic expansion, for instance, stock prices will look cheaper relative to earnings.
On the peso, ING has projected a peso appreciation to 39.50 against the dollar by year’s end and further to 38.50 in 2014. “The fundamentals continue to support a strong peso environment this year,” Cuyegkeng said in an interview after his presentation.
During the briefing, the economist took note of the $30 billion in yearly “structural (foreign exchange) flows” to the country from overseas remittances and business process outsourcing (BPO) receipts, not even counting export earnings. He said he expected the country’s gross international reserves (GIR)—at a record high $85.76 billion as of end-January—to breach $90 billion within the year.
But Cuyegkeng explained that the rate of peso appreciation would even be tempered by other global factors such as the projected rise in yields in US treasuries that could lure some funds out of Asia back to the United States.
During the same briefing, ING chief economist for Asia Tim Condon talked about this year likely being a “bad year” for US treasuries, with yields rising and the US failing to bounce to a 3-percent growth. He added that the depreciation of the Japanese yen was a headwind to the appreciation of Asian currencies, but this was more likely to weigh down the Korean won and Taiwanese dollar than the Philippine peso.