Demand for $-denominated assets seen to rise

MANILA, Philippines — Higher demand for dollar-denominated investments is expected as the greenback scales historic highs and the US Federal Reserve sustains its tight monetary policy.

“Dollar-denominated assets should be favorable when the dollar exchange rate is strengthening, especially if it is on account of increasing interest rates, as the case is today,” Antonio Agcaoili, executive vice president and head of treasury of Rebisco-led Asia United Bank (AUB), said.

The US Fed is widely expected to deliver another jumbo-sized rate hike this week to control inflation that hit 8.3 percent in August.

“The US Fed has made it clear it is on a path of sustained rate hikes. Until it is convinced that the threat of runaway inflation is completely eradicated, the dollar will remain elevated and reach historic highs,” Agcaoili said.

While there is a seasonal influx of overseas Filipino workers (OFW)’ remittances toward the last quarter of the year, the AUB official said this might not be enough to ease the pressure on the peso against the greenback.

“The demand for foreign exchange is much bigger than the amount coming from OFWs,” Agcaoili said.

Remittances rose by 2.3 percent in July, the biggest in seven months or since December last year.

Personal remittances increased by 2.3 percent to $3.24 billion, while cash remittances coursed through banks grew by 2.3 percent to $2.92 billion.

From January to July, personal remittances increased by 2.7 percent to $20.33 billion, while cash remittances expanded by 2.8 percent to $18.26 billion.

The BSP said it sees remittances climbing by four percent to hit record high levels this year.

For his part, AUB senior vice president and head of trust Andrew Chua said local investors in search of higher-yielding assets are in a good position to load up on dollar assets.

The bank is already seeing pent-up demand for its award-winning AUB Gold Dollar Fund (GDF), which offers retail investors access to the US dollar bond market normally reserved for foreigners and high net worth investors.

The GDF offers flexibility as returns can be withdrawn any time after the minimum holding period and investors benefit from a team of professional fund managers that will ensure their investments are kept safe as risk and returns are balanced appropriately.

The fund invests in a diversified portfolio of fixed income securities and offers a rate of return equivalent to the rolling yield of the five-year US Treasury notes, net of fees.

“With expectations for interest rates to continue to rise in the near term, the GDF’s net asset value will remain depressed. However, as prospects for a US economic recession rise, we expect the US Fed to end its hawkish policies soon. This, in turn, will result in a more stable interest rate environment and will allow the fund to accrue at high yields,” Chua said.

Chua said the current situation is a good opportunity for clients to start accumulating investments in the GDF and expect to reap the benefits from their investments over the next two to three years.