As of 29 January 2014
SUMMARY OF BROKER'S OPINION
Last week, emerging market currencies including the Philippine Peso suffered another vicious beating after the Banco Central de la Republica Argentina pulled out its support on the Argentinian peso, triggering its single biggest day drop against the dollar since the country defaulted on its debt in 2002. The Argentine Peso devalued by 13.2% on Thursday spreading turmoil in neighbouring Brazil, Latin America and across the emerging world. By Friday, the Argentine peso, Turkish lira, Russian ruble and the South African rand were among the worst performers reaching multi-year lows.
Interestingly, the peso showed incipient signs of recovery when it fell by a just a muted 0.7% when other emerging market currencies were falling sharply. In addition to the peso’s muteddrop last week, note that the slope of the peso’s decline is becoming less steep since the May 2013 taper speech of Bernanke (see graph below). In the case of the Philippines, whose fundamentals we believe are firmly intact, we think it is just the unwinding of overweight positions rather than the market placing a negative bet that caused the price volatility.
CONCLUSION: Today, foreign banks are saying that the peso will reach PHP 48.00. A look at the longer-term chart, however, shows that the peso is nearing strong support at the PHP 45.50 to 46 level. If ASEAN markets continue to show resiliency and if China improves, then we may see a rebound in the peso. At this point, we continue to believe that the country in general is better off with a slightly weaker peso than an overly strong peso. We believe that the peso is now at a new trading range between 43 and 46 where we expect it to consolidate for some time.
-The contents posted in this page is courtesy by PinoyInvestor-
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