Peso falls back to 43:1 territory as equity investors fear Greek debt default
MANILA, Philippines—The peso fell sharply on Wednesday to fall back to the 43-to-a-dollar territory, as rising concerns over the probability of a default by Greece prompted investors to pull out funds from equities markets of emerging markets like the Philippines.
Traders said investors’ appetite for stocks from emerging markets, which were perceived to be risky instruments, was dampened by the risk of contagion of Greece’s debt woes in the entire Euro zone.
Europe is a major export market for the Philippines and other emerging markets, and so any fallout in the Euro zone is expected to create problems for other countries.
The peso closed at 43.22, against the US dollar on Wednesday, down by 24.5 centavos from the previous day’s finish of 42.975:$1. The latest close was the weakest in over two months.
Intraday high reached only 43.05:$1, while intraday low hit 43.29:$1. Volume of trade surged to $1.64 billion from only $775.8 million previously.
Marcelo Ayes, senior vice president of Rizal Commercial Banking Corp. and in charge of its treasury operations, told the Philippine Daily Inquirer that the foreign investors were spooked by threats of a default by Greece given the fact that other countries in the Euro zone had significant exposure to Greece in the form of their holdings of Greek bonds.
Ayes said the threat encouraged some investors to withdraw their equities investments in emerging markets and buy perceivably much less riskier instruments, such as government securities.
“The shift to government securities have caused interest rates to decline, thus resulting in the narrower gap between interest rates in the United States and here [Philippines],” Ayes said.
Ayes said the narrowing interest-rate differential eventually prompted some foreign investors to buy dollar-denominated securities, such as US Treasuries, which have always been perceived to be even much safer than government securities from emerging markets like the Philippines.
Ayes said earlier moves of the Bangko Sentral ng Pilipinas to liberalize the foreign exchange environment, such as by relaxing the requirements for bringing out dollars from the Philippines, have made it easier for investors to take away dollars.
The BSP is also urging corporate entities and the government to prepay some of their dollar-denominated debts with the intention of tempering the appreciation of the peso.
As a result, Ayes said, the peso has actually depreciated.
He said the weakening of the peso would be favorable for the country’s external trade position. Peso depreciation against the dollar will help boost exports, as it will make Philippine-made goods cheaper in dollar terms and thus more attractive to foreign buyers.
The latest weakening of the peso is expected to be hailed by exporters, which suffered from slumps in export sales in the previous months due to weak economies of export markets like Europe and the United States.
