Peso at P48.0 - Here We Come!

I have been bullish on the Peso since the later part of 2005. The recent move of the Peso further "tested" and "confirmed" my view on the currency. Last week, at the height of the coup plot, the Peso tested P52.20. In a clear reversal move, the Peso gained back all its losses and at the same time closed at a 3 year high to end at P51.05 today. That shows you that the Peso is clearly on a bullish trend.

There are 3 arguments on why the Peso will move higher:

1.) Government will likely adjust its revenue targets this year. I expect that collections from e-VAT will likely surprise on the upside. I have talked to several business people and they told me that misreporting of sales to Bureau of Internal Revenue (BIR) is becoming harder with the new electronic procedure implemented by the agency.

2.) Peso risk premium is not justified. The Thai Baht and Peso are the usual comparables in the global currency basket. The Thai Baht is currently trading at Bt38.50 to US$ 1, this translates to a 32% premium versus the Peso. This sort of premium is not sustainable considering the economic gains that the country has achieved. I do believe a 20% risk premium is more defensible. This means that the Peso should be trading at P46.50 - P48.50 range.

3.) Positive dollar inflows from fund managers and OFW will continue. This means demand for Peso will continue to be strong in the coming months.

On the political front, investors are lauding the strong-arm tactics of GMA. It shows that the President is in control and it is unlikely that another major destabilization attempt will occur in the next 6 months.