Robust Philippine currency threatens business process outsourcing industry

Outsourcing to the Philippines is now said to be 30% more expensive than India and China, according to Business Processing Association of the Philippines (BPAP). But what is ironic is that the business process outsourcing (BPO) industry, which contributes much to the domestic economy, actually helped drive up the peso's value. The combination of an appreciating peso and a depreciating Indian rupee had provided India with a meaningful cost advantage. Ditto the steady Chinese yuan.

A survey of BPAP members on the impact of the strengthening peso revealed the following:

• about 46.7% of respondents said it had been more difficult to hit their respective revenue targets;
• about 40% of respondents said they had lost some business to other destinations;
• about 40% of respondents said they had canceled expansion plans.

Southeast Asia has become a preferred destination for global portfolio investors in which case their investment inflows result in increased demand for the local currency.

Aside from the BPO industry, exporters are also hit hard by a robust peso since they make less money in peso terms for every dollar they earn.

In a related development, some property experts are encouraging property developers to look beyond the BPO industry. Global consultancy firm Urban Land Institute, for one, advises property players to find new growth areas. One suggestion is to consider developing “middle office” hubs for financial institutions.

Front office usually refers to sales and marketing, and the back office covers administrative and support services, where call centers and BPOs usually come in. But middle office, on the other hand, refers to the segment within a bank or financial services firm that takes care of risk management, calculates profits and losses, and handles the information technology platform using the resources of front and back offices. Hence, the business of assigning middle office tasks to a third party is known as “knowledge process outsourcing” (KPO).

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*Copywriting and concept design by Ludwig Ritchel A. Kalambacal (May 2003).

Remembering 9/11

Today, we remember the 9/11 tragedy. Many innocent lives were lost during this fateful day as a terrorist-controlled plane slammed hard into the towering World Trade Center.

But do you know that in spite of the tragedy, there were still some people who managed to rejoice on that fateful moment even if in their hearts they were deeply sorry with what had transpired on that day? No, they are not terrorists nor are they insane. So, guess who? They were traders who were then betting on the wrong side of the market.

I should know for I witnessed some colleagues jumping up and down for joy, cheering on the top of their lungs as they've seen the market suddenly went into their trading direction. Those colleagues of mine were shorting then the USD/JPY pair, and the yen during those periods were bearish versus the greenback.

For no apparent reason, there was a drastic turn of events and we saw the dollar falling on our Reuters chart. In a few moments, the TV screen flashed out a breaking news from Bloomberg that the World Trade Center was bombed. So, it was the reason for the dollar downfall. Such confirmation made those bear dollar traders leaped for joy and cheered the Japanese currency all the more.

On the other hand, I immediately lock in my position. As much as I would want to open up a sell dollar position versus the British pounds for some profit-taking; however, it was hard getting a good deal as spreads are pretty wide and wild! I just tuned in on Bloomberg and watched the mournful event as the plane crash footage was repeatedly being shown.

After an hour or so, our CEO called up an emergency meeting to discuss some market updates. There he revealed that there was a voluntary “gentleman’s agreement” among currency brokers not to profit from the event to help stabilize the value of the dollar. But "it's too late" as I said to myself. Since, I knew for sure that several fund managers, our firm included, had already taken huge positions. (True enough, after three days the value of the dollar had continued its preempted slide.)

After that announcement, he told everybody to go home already as the management decided to halt trading for that day. But before he called for the adjournment of the meeting, he led the closing prayer reciting "The Lord's Prayer", to our surprise, since he usually assigned it to his executive secretary. Perhaps, it is one way of showing that the management had sympathized with the terror victims. That was the common assumption. But it could have been a thanksgiving prayer too. We learned that our company partake a good slice in the big market opportunity that had transpired during that mournful day.

The kiwi tumbles against the greenback, euro and yen; but rises versus the aussie

The New Zealand dollar has declined against the US dollar from 0.7052 level last Friday (Aug. 29) to 0.6997 level this morning. The 20-day moving average seems to be a strong intermediate resistance for the currency pair.

Likewise, the kiwi eased against the euro and yen; but, was up against the Australian dollar.

The kiwi went down from 0.4780 euro last week to 0.4764 euro during the New Zealand market opening, and was also down to 75.94 yen from 76.85 yen. However, against the aussie, the kiwi was trading at 0.8170 level from 0.8145 level.

Korean won isn't winning

The South Korean won (KRW) is currently Asia's weakest currency, having lost 16% of its value against the US dollar so far. The Bank of Korea is estimated to have spent about US$10-billion defending the won in July of this year. However, some market analysts have hinted last August that the central bank may not anymore intervene aggressively, which spurred speculators into thinking that the government would allow the Korean currency to weaken in order to provide more buffer on its expanding exports.

The market buzz is, thus, capital flight. There have been heavy investment outflows. Foreign investors have sold a net US$23-billion of Korean equities this year.

Last Monday, the won plunged 3% to register a four-year low of KRW1,123.6 versus the greenback. The Korean stock market fell 4.1% to 1,414.43 points, posting its lowest level in 17 months. Bonds also tumbled as the yield on benchmark five-year treasury bonds leaped to its highest level this year at eight basis points to 5.62%. Moreover, consumer inflation hit a seven-year high in May at 4.9% year-on-year.

The situation is like a reminisce of the capital flight seen in the 1997 Asian financial crisis when the won lost half of its value against the US dollar, which had led the country into a full-blown currency crisis.

Euro's rise causes Big Mac in Europe 50% more expensive than in the U.S.

The Economist magazine's Big Mac Index suggests that a McDonald's Big Mac hamburger in Europe is now 50% more expensive than in the United States. This is because of the continuing appreciation of the euro as against the greenback. Currently, the EUR/USD pair trades between the range of 1.5250 and 1.5750.

The Big Mac Index, which is based on the theory of purchasing-power parity (PPP), is a useful gauge of ascertaining which currencies are cheap and which are expensive by simply comparing the price of a McDonald's Big Mac in all the major currencies of the world. The theory goes that countries with similar levels of development should have similarly priced Big Mac hamburgers.

Could the Big Mac in Euroland continue to get even more expensive? Most probably.

The trend is still bullish in favor of the euro. But as the chart suggests, the euro "rubber band" is stretched as far as it's ever been stretched. And we all know that a rubber band returns to its original state once stretching has stopped. Thus, we may expect that the EUR/USD pair will return to its "equilibrium" state of value anytime soon especially so that some European central banks are beginning to worry about inflation.

Just when and how soon is the question.

Want to be a billionaire? Go to Zimbabwe...

In a bid to tackle rampant cash shortages, the central bank of Zimbabwe has introduced a new 100-billion-dollar bank note. The new note will go into circulation on July 28, 2008. Grappling with a record 2.2-million percent hyperinflation recorded in June, this Mugabe-ran southern African nation has already issued a number of new notes this year, starting with a 10-million-dollar note in January, and a 50-million-dollar note in April. Then in May, 100-million-dollar and 250-million-dollar notes were issued, swiftly followed by five-billion-dollar, 25-billion-dollar and 50-billion-dollar notes. Currently, one U.S. dollar value is equivalent to 27.215-billion Zimbabwe dollars. In fact, a cheese burger could cost 50-billion dollars in Zimbabwe. A full meal with a softdrink could cost around 80-million dollars. Some economists, however, believe that the inflation figure is grossly understated as based from their estimates the inflation rate is between 10-million and 15-million percent. The country's chronic economic crisis has left at least 80 percent of the population living below the poverty threshold.

Yuan hits post-revaluation peak

The Chinese yuan is set to breach the key 7.0000-per-dollar mark as it hit a high of 7.0020 to the dollar yesterday (Apr. 7). It is the strongest level for the currency since it was revalued in July 2005.

China plans to take advantage of the yuan's appreciation to fight mounting inflation, which hit an 11-year high of 8.7% in February of this year.

Most foreign exchange dealers were surprised as they did not expect the Chinese currency to rise at such a rapid pace.

The chart clearly shows a downward trend for the greenback versus the yuan. As such, technical analysis suggests a "buy" for yuan in the interim.

Withering greenback

The US dollar, hit by weak US economic data, sank to a record low yesterday (Feb. 27) against the euro and southeast Asian currencies as major commodities and Asian stocks climbed on the back of its weaknesses to move further ahead. The dollar index fell at a record low of 74.509 level.

The euro rose as high as US$1.5050, its highest since the single currency's introduction in 1999. Southeast asian currencies like Singapore dollar, Malaysian ringgit and the Thai baht hit new decade highs, while the Philippine peso, despite some political noise, breached immediate support level of Php40.400 per dollar to close at Php40.330 level.

In the commodities market, gold price surged to a historic peak at US$955.40 per ounce and crude oil came near its all-time mark above US$101 a barrel, reaching US$101.13, as investors searching for safe havens to hedge against inflation.

Asian stocks hit a six-week high mainly on corporate earnings optimism. The Morgan Stanley Capital International (MSCI) index of Asian stocks outside Japan went up 2.4%. Ditto with the Nikkei index of Japan, which rose to 1.5% to a six-week closing high.

Yesterday's weak-dollar scenario came about as a US stagfaltion fear is starting to creep in the global arena.

The Philippines gets a positive outlook rating from Moody's

Moody's Investors Service upgraded yesterday, January 25, its outlook on the Philippines from “stable” to “positive”, citing the government's easing dependence on foreign loans. The ratings include those for long-term government foreign and local currency, foreign currency bank deposit ceiling, and foreign currency country ceiling.

Improved macroeconomic environment and good fiscal performance are mutually reinforcing each other as a stronger peso and lower domestic interest rates have significantly lowered debt service payments.

This positive outlook rating may pave the way for an actual credit ratings upgrade for the country. Thus, the government hailed the decision of the prestigious credit rating agency. A credit rating upgrade may entail cheaper foreign borrowing. It will likewise make the country more attractive to foreign direct investments – an area in which we are lagging behind four Southeast Asian neighbors, namely Singapore, Malaysia, Thailand and Indonesia.

The last time Moody's raised the country's credit rating was in November 2006. The agency then upgraded the rating from “negative” to “stable” credit rating.

Bill Poulos: From a pencil-pushing engineer to successful financial trader

I want to share with you an inspiring trading experience and success of an engineer-turned-trader. This character may be fictitious or not, but the experience he shares in his website is real. It could actually happen to any upstart trader.

Bill Poulos has been trading the markets since 1974. He's a retired automotive executive who holds a bachelor's degree in Industrial Engineering, and a Master's degree in Business Administration, with a major in Finance.

In his over 30 years of trading experience, he has developed dozens of trading systems and methods. In 2001, he formed Profits Run, Inc. to impart his trading experience and wisdom to others so they could shortcut their learning curve and ultimately potentially skyrocket their earnings in the markets.

As stated in his website, he's been passionate about trading the markets since 1974. He believes that he had made just about every mistake a trader can make. He learned trading the hard way.

Since, he is an engineer by trade, he thought he could figure out the perfect way to trade the markets… but he was wrong. His personal life suffered quite a bit, too, as he spent countless hours with his nose buried in trading manuals, staring bleary-eyed at hundreds upon hundreds of charts, carefully drawing trend lines with his mechanical pencil and straightedge as there were no personal computers back in then in the 70s.

In a nutshell, he finally figured out the keys to being a successful trader after years of perseverance and determination. And it was a long and hard journey.

Here are more details about him published in his firm's website: http://www.yourfxplan2008.com/ComeAndGetIt

Financial market's reaction to the murder of Benazir Bhutto

The assassination of Pakistani opposition leader and former prime minister Benazir Bhutto sparked fear of global unrest. Her murder further highlights the issue of terrorism. Such gloomy scenario had trickled down to the financial markets and triggered a classical flight-to-safety asset flows.

On Dec. 27, the day of the assassination, the Dow Jones Industrial Average (DJIA) sank 192.08 points, or 1.42%, to close at 13,359.61 points. The S&P-500 slid 21.39 points, or 1.43%, to 1,476.27 points, while the Nasdaq tumbled 47.62 points, or 1.75%, to 2,676.79 points.

Meanwhile, the price of gold hit a one-month peak as traders reacted to the event. The precious metal, widely regarded as a safe investment in times of geopolitical uncertainty, climbed to US$830.41 per ounce from about US$825 dollars per ounce on the London Bullion Market before news of Bhutto's death.

Consequently, the Swiss franc, the currency which has a direct correlation to gold, had ended higher against both the US dollar and the euro. Coupled with weak economic data released at the same time as Bhutto's death, the greenback declined heavily by 0.6% at CHF1.1428 level. On the other hand, the euro fell to CHF1.6665, or about 0.16% lower than its level before the tragic incident took place.

In the bond market, the 10-year US treasury notes, which prices had already been up on the day after weaker-than-expected US economic data, had spiked on the news, but soon gave back some of the gains. It was up 19/32 at 4.21%.

It was indeed a volatile situation out there, but the markets are not yet panicking. Most traders' behavior was just a normal knee-jerk reaction to an unexpected event.

Stocks and peso hit new peaks

The Philippine peso finished at a seven-year high against the US dollar. It closed at Php 44.35 per dollar on Oct. 9, bringing its cumulative gains verus the greenback so far this year to 10.5%.

On the other hand, the stock market index reached a new intra-day trading high of 3,896.74 points, before settling at 3,873.5 points.

The market is still experiencing the spillover of the central bank rate cut. Wall Street's gains last Friday, Oct. 5, boosted share prices in the local bourse, while the rising OFW remittances from abroad kept the peso afloat.

Pounding the Yen or Yenning for Pound?

The British pound / Japanese yen (GBP/JPY) pair is approaching the 240 level anew.

The currency pair has recovered about 62% of its July-August drop from 251.10 to 219.30; but, individual patterns in both legs of the cross and the cross itself warn that now is not the time to turn bullish for a test of the high.

It would be best to wait on break-outs to occur. A break out of the 240 figure would continue the generally bullish sentiment. However, a breach of the trend line support would trigger a test of the 200 level, and this is from an Elliot Wave perspective.

The rally from 192.62 occurred following the breakout of a triangle. Triangles lead to terminal thrusts. In other words, price comes back to the center of the triangle following completion of the breakout rally. The rally is in 5 waves, indicating a high probability that a top is in place at 251.10. In this case, the center of the triangle is near 200.

On the other hand, a Simple Relative Strength Index (RSI) study also suggests that the GBP/JPY may be in for a much bigger decline. There is already an overbought signal as the RSI is well above 80.

Will the US GDP derail the Euro rally?

Well this week it was the Fed helping push the euro currency higher against the greenback. The unexpected 50 bps cut on interest and discount rates had pushed the EUR/USD to reach record levels. And it seems that pretty much everyone is afraid of being short for an extended period of time.

The currency pair will still have its moves to the downside but there is one thing that is for sure: This market moves almost as quickly to the upside as it does to the downside!

Event risk due out of the US on Sept. 27, Thursday, could continue to weigh on the greenback, as new home sales are expected to drop and Q2 GDP is anticipated to be revised lower. If the figures are worse than expected, this could prove to be especially gloomy for the US dollar, as EUR/USD would target a break above 1.4165 to fresh highs near 1.4210. However, if the GDP revision proves to be surprisingly positive, traders may judge that the economy may be able to weather the stormy conditions of the housing recession, which could help send EUR/USD down to test 1.4030 level.(Refer to DailyFX).

Also remember this Friday is the last day of the month and the last day of the quarter. Watch for that day to be very active. Remember more opportunities means more risk.

Returning OFWs' Itinerary of Fund and Adventure

*Space+ vol. 2, iss. 1 (May-July 2007).