The Hongkong and Shanghai Bank Corp. (HSBC) on Tuesday said remittances, the business process outsourcing (BPO) sector as well as fundamentals would continue to power the local unit and enable it to end at 41 level before end-2010.
The HSBC earlier projected the local unit to end at 43.50 to a dollar this year but this forecast has been surpassed after the unit ended Tuesday’s trading at 43.40 to a dollar, from 46-level at the start of the year.
HSBC Treasury Head Arnulfo Veloso told reporters Tuesday that drivers of the peso’s strength include the continued strong expansion of the domestic economy and the volume of money being sent home by Filipinos abroad.
In the first half this year, the domestic economy grew by 7.9 percent, from 7.8 percent and 7.9 percent in the first and second quarter, respectively.
Also, remittances surpassed the eight percent full-year projection for this year last August alone after it jumped by 9.8 percent to US$ 1.5 billion while growth in the first eight months this year is 7.4 percent to US$ 12.18 billion.
These factors are boosting the peso and made investors attracted to emerging economies like the Philippines because of the weakness of the US dollar and the uncertainty of the growth path in major economies.
Veloso said growth of the economy, as measured by gross domestic product (GDP), is something that really lends credence to the strength of the local unit.
“It (GDP) will continue to be robust,” he said.
He, on the other hand, noted that prices of domestic commodities are rising amid the benign inflation environment.
The current low inflation environment allowed monetary officials to keep central bank’s policy rates at record low and Veloso said they see this situation to remain through the rest of the year.
Relatively, HSBC senior vice president and corporate banking division chief Junie Veloso said they see an increase in the central bank rates at the early part of 2011.
“About 25 basis points in the first quarter next year,” he said.
Meanwhile, he cited that it is not just the voice component of the BPO sector that is pushing the growth of this “sunshine industry” since non-voice services like medical and legal transcriptions are also increasing.
“We’re pretty well-placed and I see these to grow steadily in the coming years,” he said.
He, however, noted that it is the services sector that boosts the domestic economy due to lack of investments in other sectors like manufacturing.
He said there is a need to put in more investments in infrastructure to ensure that capital investments would stay in the domestic economy longer and not just in equities, which is at all-time high recently.
As of end-September this year, net foreign portfolio investments, otherwise known as “hot money” because of how fast it can come in and go out of the domestic economy, expanded by 520 percent to US$ 1.421 billion from US$ 229.13 million net inflow during the same period last year.
Total investments during the period reached US$ 7.189 billion from US$ 4.709 billion in end-September 2009 after placements in investments listed with the Philippine Stocks Exchange (PSE) grew 44 percent to US$ 5.3 billion from US$ 3.7 billion during the same period last year. (PNA)