SHORT-TERM investments made by foreign investors to the local market slumped to net outflows in the first half of the year as global investing sentiment paled due to trade war and domestic growth issues.
The Bangko Sentral ng Pilipinas (BSP) on Thursday reported a significant decrease in foreign portfolio investments (FPI) to the country in January to June this year, for a total of $720.98 million in net outflows. This is a reversal of the $322.87-million net inflows seen in the same six-month period last year.
FPI are known as “hot” or “speculative” money because they are easily pulled in and out of the local platforms in the slight change of global and local sentiment.
This type of foreign investment is usually a measure of the global economy’s investing sentiment on the Philippines in short-term prospects for yields, in contrast to foreign direct investments (FDI), which are investments placed in the Philippines in search of long-term yield.
ING Bank Manila economist Nicholas Mapa said the slump in the country’s FPI performance largely emanated from the decisions made by anxious investors on the US-China trade war.
“May and March saw the worst of the sell-off with episodes or flareups in the tensions related to the US-China trade war spooking investors and prodding them to dump emerging market bonds and equities. For the month of May alone, equities saw a $508-million net outflow in the equity market as Trump and Xi traded barbs and actual tariffs, but tensions have ebbed recently after the G-20 meeting,” Mapa said.
While June’s FPI numbers are still in the red, the net outflow is smaller than the previous month. In particular, the BSP said June’s FPI resulted in a net outflow of $35.72 million—an improvement from the $749.84 million in May and the $516.12 million in the previous year.
“Sentiment was largely affected by the ongoing US-China trade war but very recently we’ve seen a stark shift in mood with the Fed primed to cut rates in July. For the coming months, we could see at least a partial reversal in these outflows with expectations for easy monetary policy and faster Philippine growth in the second half seen to attract inflows rather than prompt outflows,” Mapa said.
Mapa’s views backed the BSP explanation of the FPI improvement in June. In its statement, the country’s central monetary authority said the better FPI numbers in June were on the back of within-target inflation data for May, the resumed trade talks between US and China, and the anticipated interest rate cuts of the US Federal Reserve.