Peso seen breaching 51:$1 mark

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URL: http://money.inq7.net/topstories/view_topstories.php?yyyy=2006&mon=02&dd=02&file=1Posted: 2:15 AM Feb. 02, 2006

Doris C. Dumlao
Inquirer

FOREIGN buying of Philippine stocks, softening world oil prices and better credit-rating prospects for the country strengthened the peso further to a three-year high of 52.05 to the dollar during trading on Wednesday before closing at 52.09, its strongest finish since ending at 52.05 to the dollar on May 12, 2003, analysts said.

"There's positive sentiment toward the VAT implementation and corporate demand for dollars is thin," said Roland Avante, treasurer at Chinatrust Commercial Bank Philippines.

The peso opened at 52.10 to the dollar and hit an intra-day low of 52.125 before closing, on a trading volume of $448 million.

The currency was also supported by prospective foreign capital inflows for the P8.5-billion initial public stock offering of First Generation Corp.

Avante said another favorable factor working for the peso was the easing of international oil prices. "At a price of $67-68 a barrel, oil companies need to source about $100 million from the spot market in a month," he said. "At only $65 a barrel, this will go down to $60-$70 million, a demand that can easily be absorbed by the market."

While the momentum is positive and the peso is heading toward the 51 to the dollar, Avante said, the cheaper dollar was creating demand.

"We haven't seen the peso at low 52 levels for a long time, so those who are not so optimistic are now hunting for bargains. They are buying dollars at these levels," Avante said.

Analysts expect Philippine stocks to outperform fixed-income securities this year, which would mean the peso's appreciation would depend more on equity investment flows.

"The US treasuries are declining in price but our comparative benchmark is not moving so the spread is declining," Avante said, noting why local debt paper would likely become less attractive.

Analysts at ING agreed that double-digit returns on peso bonds seen last year would be impossible to replicate this year.

Paul Joseph Garcia, ING Philippines chief investment officer, said peso bonds would likely yield only 8-10 percent net after tax while local equities could top last year's return of 15 percent.

"This year, we're looking at 15-20 percent" return rate for the Philippine Stock Exchange composite index, he said. "Our view on valuation is still cheap."

Meanwhile, Avante said the market would be very disappointed if the Philippines would not get an upgrade in its credit-rating outlook from major international rating agencies. He said most investors had priced an improvement in the ratings and that a change in the outlook from "negative" to "stable" might not be enough. With INQ7.net

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