Manulife IM expects peso to continue weakening in 2023

MANULIFE Investment Management expects the Philippine peso to continue weakening, albeit at a slower pace for the coming year, assuming that the US dollar remains strong.

“If the US dollar were to remain strong through 2023, that typically bodes poorly for many emerging market currencies, for the Philippines specifically,” said Sue Trinh, co-head of global macro strategy at Manulife Investment Management, or Manulife IM.

“We would suggest that a gentle depreciation is likely through the coming year,” she said in response to questions from BusinessWorld during a virtual media briefing.

Manulife IM is the global wealth and asset management segment of Manulife Financial Corp.

For 2023, it expects the US dollar to remain strong in the coming six to eight months, peaking in the second half of the year if the US Federal Reserve eases on rate hikes as inflation peaks.

The Fed brought its policy rate to 4.25-4.5% at its Dec. 13-14 meeting, which brings the total hike of borrowing costs to 425 bps since March.

Also factoring into Manulife IM’s dollar bet for 2023 is its expectation that China will ease its coronavirus disease 2019 (COVID-19) restrictions by the second half of the year.

Beijing started pivoting away from its “zero-COVID” policy this month after protests against the economically damaging curbs championed by President Xi Jinping.

“If China’s reopening goes to plan, that may even present some upside risks in terms of energy prices there and bode poorly for the current account gap in the Philippines from rising imports,” Ms. Trinh said.

She added that foreign direct investments (FDIs) are going to be an important source of financing as she called for an easing of restrictions on fund infusions into the economy.

Data from the central bank showed that FDI net inflows slid by 7.9% in September to $626 million from $680 million in the same month in 2021. This was also 19.1% lower than the $ 774- million FDI net inflows in August.

Before his oath-taking as president in June, Philippine President Ferdinand R. Marcos, Jr. said that he was not opposed to opening foreign ownership to 100%. The 1987 Constitution mandates that foreign ownership in some industries cannot exceed 40%. 

“The recent election did suggest that the government would be moving down towards a much more pro-FDI path which is somewhat encouraging, but given how long that kind of financing plays out, it does suggest a softer trend for the peso, which will continue through 2023 and probably not as aggressive as we’ve seen it in 2022,” Ms. Trinh said.

Manulife IM also expects the Philippine Stock Exchange index to reach 6,850 next year due to the country’s domestically oriented economy, which makes it less exposed to external volatility.

“We should expect the economy to continue benefiting from a more fulsome reopening and credit growth cycle there in terms of markets,” Ms. Trinh said.

“We are staying mostly cautious and would advise a heavier overweight to duration once you see consumer price index (CPI) inflation having peaked and the BSP (Bangko Sentral ng Pilipinas) really taking its foot off the gas in terms of its tightening cycle,” she added.

Paul Kalogirou, Manulife IM Asia head of client portfolio management, global multi-asset solutions, and client portfolio manager, said: “Any sort of bullish momentum above 6,850 would be sort of positive in terms of risk assets or sentiment turning more positive towards the Philippines.” — Aaron Michael C. Sy