Will the peso appreciate this December?
Posted by butalidnl on 13 December 2007
Some years ago, when I was involved in a money-transfer business to the Philippines (from the Netherlands), I noticed that the Philippine peso would appreciate during enrollment times (June and October), Christmas and elections. The peak during enrollment times and Christmas is due to the surge in Overseas Filipino (OF) remittances. As for elections, I suppose this is because the various candidates are sending back dollars from their foreign bank accounts to help finance their campaigns.
With the peso appreciating all year already, it is now a question whether Christmas this year will see it appreciate even more, with the expected increase in OF remittances. Maybe this year would be different. One of the effects (and at the same time, a contributing cause) of the steady appreciation of the peso is that foreign companies in the Philippines have been postponing the transmission of their profits to their head offices in the expectation that these would be worth more later. At the end of the year (i.e. assuming that their fiscal year is the same as the calendar year), these companies would have to transmit their profits home.
At the same time, international portfolio investors (i.e. those who buy stocks, bonds or derivatives) who invested in the Philippines in 2007 would also be conducting their end-of-year “window dressing” operations. This happens when, at the end of a year, investors sell off some of their investments and buy others in the hope of making their year-end report more “presentable”. In the stock market, this means that smaller-cap stocks will be sold and blue-chip stocks bought. In the international framework of the portfolio investor, it may be that their Philippine investments would be seen as second-class, and this would mean that these would be sold and replaced with what they see as first-class investments.
If both of these things indeed happen, there will be a surge of “remittances” going outwards this December.
I don’t know how much the outward remittances would be in comparison to the inward surge of OF remittances; and thus, I can’t say for sure whether the net result would be that the peso would appreciate, or depreciate, in relation to the dollar. But whatever happens this December, I expect a return to the “normal” trend come January.
see also Peso-Dollar Rate