June FDI post net inflows of $831 million

FOREIGN direct investments (FDI) posted net inflows of $831 million in June 2018, increasing by 9.2 percent from the $761 million recorded in the same month last year, the Bangko Sentral ng Pilipinas (BSP) has reported.

The Central Bank traced the rise in FDI net inflows largely to nonresidents’ net equity capital investments of $184 million during the month, a turnaround from the $67-million net withdrawals in June 2017.

“The improvement in net equity capital investments was due to the 83.6-percent expansion in gross placements of equity capital to $208 million, which more than offset withdrawals of $24 million. Equity capital placements came mostly from Singapore, Luxembourg, Japan, the United States and the Netherlands,” the BSP said.

It said equity capital placements were invested mostly in manufacturing; electricity, gas, steam and air-conditioning supply; real estate; financial and insurance; and wholesale and retail trade activities.

Nonresidents’ investments in debt instruments issued by their local affiliates amounted to $569 million, 24.6 percent lower than the $756 million recorded in June last year, while reinvestment of earnings increased by 7.1 percent to $77 million during the month.

“On a cumulative basis, FDI registered net inflows of $5.8 billion for the first semester of 2018, an increase of 42.4 percent from $4 billion last year. The continued inflows of FDI indicate investor confidence in the Philippine economy on the back of strong macroeconomic fundamentals and growth prospects,” the BSP added.

FDI is the type of investment that is often more coveted, as it stays longer in the economy and creates job opportunities for locals. It is also not easily pulled out of the market unlike its shorter-term counterpart, the foreign portfolio investments.

In June this year, the Central Bank revised the Philippines’s FDI projection upward to $9.2 billion by the end of the year, from the $8.2-billion projection earlier.

Sovereigns safe

Meanwhile, the Moody’s Investors Service published a Sector In-Depth report, pointing out that the credit quality of global sovereigns shows limited vulnerability to the exposure of nonfinancial companies to higher borrowing costs.

In the report, titled “Sovereigns – Global: Risk to government credit quality from rise in corporate debt vulnerability is limited,” Moody’s said corporate leverage has surged in the last 10 years, as companies globally took advantage of low borrowing costs. As financing conditions tighten, financial stress in parts of the corporate sector has the potential to weigh on sovereign credit quality.

“However, in general, we find that economic, fiscal, capital and external buffers limit risks to sovereign creditworthiness,” the report said.

Based on a Nomura Global Markets Research, its early warning indicator of exchange-rate crisis called the “Damocles” reported that seven countries are currently at risk of exchange-rate crises with scores over 100, namely: Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine.

The report also pointed out that eight countries, including Brazil, Bulgaria, Indonesia, Kazakhstan, Peru, the Philippines, Russia and Thailand, have Damocles scores of zero, meaning that the instrument does not see crises emerging for these countries.

“The current account balance shifted from a surplus to a deficit in 2016 [for the Philippines]. However, the deficit is small and is largely driven by a surge in infrastructure-related spending that will help unlock the economy’s full growth potential,” the Nomura report said.

The Damocles summarizes macroeconomic and financial variables into a single measure to assess an economy’s vulnerability to a currency crisis.

 

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Rea Cu is a graduate of Assumption College-Makati with a Bachelor's degree in Communications. She majored in Advertising and is currently the finance reporter of the BusinessMirror.