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Inflation – According to Asia United Bank (AUB), which is led by the Ng family, an increasing number of investors are switching to dollar-denominated instruments in response to the historic rise of the greenback. The strength of the greenback is likely to continue despite the seasonal increase in overseas remittances toward the end of the year.
The lender mentioned “pent-up demand” for its gold and dollar fund, also known as GDF, in a statement that was released on Tuesday. GDF is aimed at the more general market of individual investors.
Dollar-denominated assets should be favorable when the US dollar exchange rate is strengthening, especially if it is on account of increasing interest rates, as is the case today, according to Antonio Agcaoili, executive vice president and head of treasury at AUB. “Dollar-denominated assets should be favorable when the US dollar exchange rate is strengthening,” Agcaoili said. Rate increases in the US
The Federal Reserve of the United States has made it very obvious that it intends to continue its course of persistent rate hikes. The value of the dollar will continue to rise and may even surpass previous records if investors are not convinced that the risk of unchecked inflation has been eliminated entirely, he said.
Since the beginning of this year, the value of one Philippine peso has decreased relative to one United States dollar by around 12.5 percent.
Some industry professionals, such as Michael Ricafort, chief economist at Rizal Commercial Banking Corp., have referred to the devaluation of the peso as being “overdone” in light of the decreasing interest rate gap that exists between the Philippines and the United States.
The Ricafort Group stated that they will continue to take a “wait-and-see” stance on any future government measures. This “wait-and-see” approach includes intervention that is designed to support and stabilize the domestic exchange rate.
Insufficient remittances
“the demand for foreign exchange is considerably bigger than the amount coming from OFWs,” stated Agcaoili, who noted that the influx of remittances from overseas Filipino workers (OFWs) in the fourth quarter may fail to meaningfully prop up the peso.
According to Andrew Chua, AUB’s senior vice president and head of trust, “as a result, local investors who are looking for assets that generate a better rate of return will be in a favorable position to load up on US dollar assets.”
“Because it is anticipated that interest rates will continue to climb in the not too distant future, the GDF’s net asset value will continue to be in a depressed state. However, as the likelihood of a recession in the US economy increases, we anticipate that the US Federal Reserve will soon abandon its aggressive policies,” Chua added.
This will, in turn, lead to a more stable environment in terms of interest rates, which will make it possible for the fund to accrue at high returns. As a result, we consider the current circumstance to be an excellent time for our customers to begin amassing investments in the GDF, and we anticipate that they will begin to enjoy the fruits of their investments within the next two to three years,” he went on to say.
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