The Philippine peso sank to a seven-year low and stocks declined as investors pulled money from the nation’s assets amid concerns about President Rodrigo Duterte’s policies.
Global funds sold Philippine stocks for a 23rd straight day amid nervousness about the fallout from Duterte’s anti-drug war and his outbursts against the US and the United Nations.
Bangko Sentral ng Pilipinas Governor Amando Tetangco, who last week sought to soothe investors spooked by Duterte’s rhetoric, said Monday the currency’s movements partly reflect uncertainty about the Federal Reserve’s next policy action.
The peso led a drop in emerging-market currencies ahead of the US presidential debate and a meeting of oil producers this week.
The peso’s decline is “mainly due to politics, with the Philippine president’s ongoing war on drug dealers and his intent to seem to alienate all of their major trading partners,” said Jeffrey Halley, a market strategist at Oanda Asia Pacific Pte in Singapore.
“Any rally would be quite short-lived in the peso this week just until the political situation clarifies a lot more. We also have the first US presidential debate coming up and I think it’s quite a big event that hasn’t really been priced by the market,” he said.
The peso lost P0.26, or 0.5 percent, to close at 48.25 a dollar Monday from 47.99 a dollar Friday. Available data from Bangko Sentral ng Pilipinas showed it was the local currency’s weakest level since it settled at 48.356 on Sept. 16, 2009 at the height of the global financial crisis.
Total volume turnover reached $758.5 million, higher than $590.5 million on Friday.
“The peso movement reflected the continuing uncertainty about the US Fed’s next policy action, just like the other regional currencies, plus strong foreign exchange demand for fixing and corporate requirements,” Tetangco said.
Finance Secretary Carlos Dominguez III said the situation was not unique in the Philippines but was also happening in other parts of the world.
“You look at the dollar is doing around the world. You know, when [Fed chairman Janet] Yellen says we might raise rates, that will affect us, it’s not only our situation,” Dominguez said.
ING Bank Manila senior economist Joey Cuyegkeng said in an e-mailed response to an inquiry that the peso continued to underperform, compared to other Asian currencies.
“External factors that have also affected other currencies include external developments in G3 economies such as the recent decisions of ECB [European Central Bank], FOMC [Federal Open Market Committee], and BoJ [Bank of Japan] and market expectations of a possible Fed rate hike in December,” Cuyegkeng said.
Cuyegkeng said the peso’s underperformance against other Asian emerging market currencies had to do with local factors, including expectations of lower current account surplus that could make the country return to a twin deficit environment that plagued the economy in the past decade.
He said other local factors had to do with market perception about Philippine valuations, and its outlook relative to other Asian markets, and other concerns, including non-economic concerns.
“In sum, economic fundamentals remain favorable but there are emerging stresses on the economy and could be exacerbated by non-economic factors. Investors have priced in a lot of positives about the economy and are now on the lookout for risks that could disappoint expectations,” Cuyegkeng said.
Security Bank Corp., for its part, said in its daily report Monday that a slew of US data, Fed member speeches and US presidential debates this week could give direction and to either increase or decrease the probability of a rate hike in December.
“We still think that the US dollar could be bought on dips as the market will price in a rate hike this December. US politics could be the next narrative for the market to follow,” Security Bank said. With Julito G. Rada