Dealing with volatility

By Mia E. Abellana

Friday, February 24, 2012

THOUGH the Philippines has promising economic indicators despite the situation elsewhere in the world, officers of a local bank believe volatile markets can still affect sectors that have to deal with foreign entities.

In an economic briefing conducted by Security Bank for clients of Punongbayan and Araullo, foreign exchange and rates hedging division head Raul Victor de Guzman said the global market has never been more volatile than now.

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He noted that with today’s technology, news travels fast and sudden calamities or reports of unrest suddenly have an impact on world economies.

Because markets tend to react quickly and in real time, de Guzman acknowledged that economists and financial experts now find it harder to make forecasts on where economies are headed.

He added that what was once the easy thing to do in a crisis may not always be the best solution these days.

“Before, people just bought dollars. But now, even the idea of the dollar as a safe haven is being questioned. No one wants to accumulate any more dollars,” de Guzman said.

As most developed and emerging economies lost growth last year, he said only two economies managed to grow in 2011: Indonesia and the Philippines.

He said both countries did not rely on their exports to grow. “Economies that are export-led take a hit if the market tanks. They will fall faster than those that are not export-led.”

The downside to this, he said, is if the global economy grows, the country gets left behind.

The Philippines, he said, is a consumption-led economy and he likes to believe the forecast of an international bank that expects the Philippines to be in the top 20 economies by 2050.

Reasons for high consumption are the strong population base. The billions of revenue brought in by overseas Filipino workers’ remittances and the business process outsourcing industry are fueling the consumption.

He believes that the OFWs survived the 2008 global economic crisis when almost everyone was getting laid off because of the kind of workers the country exported. Most OFWs were in the health care and education field, which affected economies needed and did not let go. But overseas workers in real estate and construction did not do so well.

He also said remittances surge even higher in June, as classes begin, and during December. They also noted a spike in remittances whenever catastrophes hit the country.

De Guzman added that this year, they expect the Philippines to see a credit rating upgrade and it could finally reach investment grade status.

He explained that once this happens, the country can expect even more investors putting their money here, instead of in other countries that are facing problems.

He added that some investors, who may already have been interested to invest in the country, may be waiting for the upgrade because of strict company rules about investing only in investment grade entities. He also said the country can borrow funds and pay less interest once it gets to investment grade.

De Guzman said knowing this kind of information can help businesses that have to deal with foreign markets stay safe from market volatility.

Businesses, especially importers and exporters, get jittery when currencies jump from one level to another at differences of P4 to P6.

But if they know market information well enough, de Guzman said they will know when to time their purchases so the rates will be more favorable to them.

With this, de Guzman and senior corporate sales officer Robin Galang introduced some of their products that allow importers and exporters to eliminate the risks of currency changes.

Galang explained that they offer bank products that allowed clients to buy or sell dollars at an agreed price on a future date.

The perks are the clients eliminate all the risks of losing money should the rates change against their favor. The downside is they may not benefit from the extra money should the rates change in their favor. Still, de Guzman said such products allow businesses the benefit of knowing exactly how much they will be paying.

Published in the Sun.Star Cebu newspaper on February 25, 2012.