Peso seen appreciating to 40 to $1 in 2014

The peso is seen appreciating significantly next year as foreign investors, attracted by the country’s healthy economic growth prospects, flock to the Philippines.

Investment bank Goldman Sachs said this would make it easier for the country’s growing conglomerates to further expand their reach in the region since a stronger local currency would make foreign acquisitions cheaper.

It said the peso would likely appreciate to 40-to-a-dollar next year, significantly stronger than the government’s assumed average of 41 – 43: $1 in 2013.

The local currency, Goldman Sachs said, would be “among the strongest in the region,” with its expected rise to be driven by higher investments and the continued inflow of foreign exchange from Filipinos overseas and the outsourcing industry.

“We are working on a number of transactions. You can expect transaction volumes to grow. There’s a lot of positive momentum here from an investment banking perspective,” Goldman Sachs vice-chair for Asia ex-Japan Tim Leissner said.

Goldman Sachs was the Philippines’ main adviser in its successful campaign to achieve “investment grade” status with all the major credit rating firms this year.

At a press briefing Wednesday, Leissner said the country’s highly diversified conglomerates already had their sights set on potential acquisitions in Southeast Asia.

He said local conglomerates would likely expand to other parts of Asia and the United States, the country’s largest trading partner.

“The fundamentals of the economy are really driving the exchange rate here… it’s driven by fundamental macro growth,” Leissner said.

While a stronger peso makes imported goods such as fuel cheaper, it also means less competitive export products and less peso for every dollar earned by outsourcing companies. A stronger peso also means families that receive remittances from overseas Filipino workers will have less peso to spend.

Apart from the country’s strong economy, Leissner said the international community also viewed the Aquino administration with high regard due to its success in lowering the state’s debt and curbing corruption in the government. He said the Aquino administration had also made inroads in minimizing red tape, making the country friendlier to foreign investors.

Leissner said this confidence was currently one of the country’s main selling points. “People want to see more of this… Please stay the course,” he said.

For the year, Goldman Sachs sees the Philippine economy growing by 6.8 percent, near the high end of the government’s target range of 6 to 7 percent. Its forecast matches the International Monetary Fund’s (IMF) projection for the Philippine economy this year.