PERSISTENT weakness of the peso could make local equities less attractive to foreign investors as currency losses can erode stock market gains when returns are converted into their home currencies, according to Manulife Investments Philippines.
Manulife Investments Philippines head of equities Elle Jamil said currency stability is an important consideration for global investors because they ultimately measure their investment returns in their home currency.
“A strong equity return can be partially or fully offset by currency depreciation, so persistent peso weakness effectively raises the hurdle rate for allocating capital to the Philippines relative to other Asean markets,” Jamil said, referring to the Association of Southeast Asian Nations (Asean).
Jamil, however, stressed that currency is only one of several factors considered by foreign investors when deciding where to deploy capital.
“Investors will still weigh earnings growth, valuations, liquidity, governance, and the broader macroeconomic outlook alongside FX risk,” Jamil said.
“A sustained peso recovery would be supportive but not sufficient on its own,” he added.
The local currency has been trading above P60:$1 for the past months due to stronger US dollar and global uncertainties. It sunk to record low of P62.625 against the dollar on Tuesday as rising oil prices weighed on market sentiment.
Jamil said that a sustained recovery of the peso could therefore provide a boost to foreign investor sentiment toward Philippine equities, particularly if the currency improvement is accompanied by stronger corporate earnings and better macroeconomic fundamentals.
“If accompanied by stronger earnings and improving macro fundamentals, a more stable or appreciating peso could reinforce foreign inflows and create a more constructive feedback loop for overall market sentiment,” Jamil said.
Moreover, Jamil said investors should focus on a company’s net currency exposure, rather than simply assuming that a weaker peso is either positive or negative for equities.
“Companies with peso revenues but significant imported inputs or foreign-currency liabilities are more vulnerable to margin pressure,” Jamil said.
“In contrast, businesses with foreign-currency revenues and largely domestic costs have a natural hedge and can potentially see earnings benefit from peso depreciation,” he added.
Despite the risks posed by peso depreciation, currency-driven declines in Philippine stocks do not necessarily mean that the underlying companies have become fundamentally weaker.
Jamil said investors often react negatively to peso weakness because the currency movement can affect both investment returns and corporate fundamentals.
“For long-term investors, the key is determining whether currency move changes any given company’s normalized earnings and cashflow outlook, which could come from foreign-currency debt and hedging, imported input exposure, pricing power, and whether revenues provide a natural currency hedge,” Jamil said.
“If those fundamentals remain intact and the decline is largely the result of broader risk-off sentiment or foreign selling, peso-driven weakness can create attractive entry points,” he added.
But if peso depreciation structurally compresses margins, increases leverage, or weakens a company’s ability to reinvest, a lower stock valuation could instead reflect a genuine deterioration in the company’s intrinsic value.
“The distinction is whether the currency is affecting price or value and sometimes it is affecting both,” Jamil said.
