In Southeast Asia, the appetite amongst investors has been growing for quite some time. Of the many nations within that region, several have been earmarked as rapidly emerging markets capable of significant growth, and healthy recoveries from the global health crisis of 2020 onwards.
According to Oxford Economics, some of the fastest-growing, and highest-rated economies include Malaysia, The Philippines, Indonesia, and Thailand. Some rely on thriving tourism industries like Thailand, others are experiencing rapid GDP growth – the Philippines boasts a year-on-year increase of 5.3%. It’s, therefore, no surprise that forex traders were attracted to the region and its wealth of small, high-growth national economies.
The demand was so great in fact, that the recent decision of the Philippine Monetary Board – known as the Bangko Sentral ng Pilipinas (BSP) – has raised the NOP (Net Open Position Value) for banks’ foreign exchange transactions. The NOP is the sum of all short single currency exposures, and raising the cap is a sign of both strong appetite and a willingness within the nation’s banking structure to usher in more market activity, within a well-regulated shell. In short, it’s great news for forex traders.
Whilst this good news was announced, an important appendix was added to the statement, to limit risk-taking. As the BSP Governor, Benjamin Diokno explained in his weekly press conference; “The amendments are geared toward increasing liquidity in the foreign exchange market while ensuring that the transactions undertaken by financial institutions meet legitimate foreign currency needs and are subject to the appropriate risk governance.”
The move comes in light of presumed increased demand from traders and brings with it a number of potential benefits to both sides of these trades, both to investors and the facilitators, or brokers, of the trades. Firstly, and perhaps most obviously, greater liquidity in the Philippine forex market. This is important to the establishment of the Philippine Peso as a trusted and reliable currency to trade in as, typically, higher liquidity leads to a more secure, predictable currency pricing. Conversely, less liquidity means much higher volatility in the market, which can often be less attractive to a more cautious forex trader.
The liberal decision to raise the cap also increases the chance of further government supervision of the market. Again, this is no bad thing. An increase in legislation and some improvement in supervision can be fantastic trust signals to retail investors or institutional bodies looking for consistent Asian currencies to trade-in. As many of these nations are viewed as ‘emerging’, it’s positive to see them take their forex market seriously, although the hope amongst many will be for a balanced approach between legislation and market freedom.
Forex being a naturally unpredictable and fast-moving beast for traders, the decision to raise the NOP has happily resulted in no major drop-off in interest. It appears more traders are instead choosing to test the waters of the Philippine market with demo accounts, often found on popular forex trading platforms that allow for a risk-free observation of how the move has affected the Philippine Peso’s day-to-day movements.
As mentioned, this move has been a measured one from the BSP, as much as it was a move to welcome greater investment. Economic recovery has seemingly been the approach of many nations leaving the challenges of 2020 behind and hoping to enjoy some growth in the new year. For forex traders, there is a sense of waiting to see how the cap rising affects the volatility of the peso. It’s an exciting step for an emerging market, but also one that will leave traders filled with plenty of curiosity moving forward.
