The last two months have been interesting and bizarre, as everyone, from President Duterte on down, offers an explanation on why the Philippine peso is depreciating. The idea that the US government might be selling pesos to embarrass the Duterte government is certainly a possibility.
Or maybe it is the Philippine government that is selling pesos in order to blame the US government for currency manipulation. Conspiracy theories are hard to follow.
The best “Unified Theory” that attempts to bring both the peso and the stock market falling together is that major drug lords are selling their stock holdings and going into US dollars to protect their ill-gotten wealth.
Back in the early 1980s, when I was doing investments for high net-worth clients, I kept hoping that someone with a heavy Colombian-Spanish accent and bodyguards carrying large duffel bags stuffed with cash would walk into my office. But drug lords rarely invest in stocks, preferring to spend their money on hot women and hot cars and big houses for both. Further, filling out the Bangko Sentral forms and listing “Need to get my money out of the country” as a reason for buying dollars probably won’t work. If that money laundering is done through informal channels, it would not show up in the peso-dollar exchange rate, so that is unlikely also.
Here is an alternate explanation that might account for some of the recent peso-dollar depreciation. Back in the day of Shoemart—not “SM”—department stores, the foreign-currency exchange booth was at the bottom of the escalator in the old Makati location. Beginning in September, there was usually a line on Saturdays, as families that received remittances from relatives and lola living in the US came to buy pesos.
The currency-exchange booth was a service to customers who would then shop at Shoemart. But there was also another purpose. About this time every year, retail companies like SM begin setting up and funding Letters of Credit (LCs) to import all the Christmas goods. Rather than having to buy dollars and lose on the buy-sell spread, these retailers use the dollars they have exchanged for pesos to fund their LCs.
But the amount of remittances is growing at least one-third of the rate of increase just two years ago. Yet, SM’s retail sales grew at 7.2 percent in 2015 over 2014. At this same time in 2014, the peso went from 43 to 45. In 2015 the move was from 45 to 47, and this year it is from 46 to 48. In 2014 and 2015, the peso then appreciated or flattened out going into the New Year.
I could be wrong on this, since the peso has been in a negative trend since 2013. However, on the Philippine Dealing System (PDS)—where the peso is traded—there does not seem to be anything unusual. Further, currency speculation does not take place on the PDS cash market, but in the “forward” market, which has almost no volume.
Based on the information I see, I do not believe the peso is under speculative attack, being effected by drug lords, or a result of what the President says. I think, it is because of the Christmas season.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
3 comments
Yup, I think the peso is down because there’s a bigger demand for US dollars by importers this Christmas season. Even the drop in the PSE index was blamed on the President by analysts but today, this morning, it is up. I read somewhere that analysts have a board in their offices where they throw darts at to explain why the index is up or down. Analysts against Duterte blame the administration when the PSEi falls while pro-administration credit him when it rises. Which is which?
A colourful personality Miriam Santiago passes away….I am sure she is arguing her case at the Pearly Gates and will get in one way or another. Salud – Vive La Republica
Therefore, the peso slide is due to Christmas season and Janet Yellen.