SHORT-TERM investments from foreign investors will likely remain in the red for the Philippines and other emerging market economies for the year, but capital flows in search of long-term profit will remain on course for 2018.
In its recent Global Macro Outlook, Moody’s Investors Service said global investors’ need for portfolio rebalancing has led to increased market pressure, particularly in emerging markets across the world.
Moody’s quoted the Institute of International Finance as saying net capital flows to 19 emerging market countries, including the Philippines, as well as Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Hungary, India, Indonesia, Korea, Mexico, Poland, Russia, South Africa, Thailand, Turkey and Ukraine, slowed to $11 billion in the second quarter, from $118 billion in the first quarter.
Also, excluding China, this group saw net outflows of some $2 billion in the second quarter. In the Philippines, latest data from the Bangko Sentral ng Pilipinas (BSP) showed foreign portfolio investments (FPI) remain in positive territory but declined in July to a net inflow of $53.29 million against the $296.47 million in the same month last year.
The seven-month total, however, saw an improvement to a net inflow of $455.74 million against last year’s $204.24 million net outlflow.
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.
“We expect portfolio flows to emerging market countries to remain volatile as monetary policy accommodation in advanced economies is gradually withdrawn. But other flows, including FDI [foreign direct investments] and bank flows, will remain relatively strong overall,” Moody’s said.
FDI are usually the type of investment that is more coveted, as it stays longer in the economy and creates job opportunities for locals.
Latest data from the BSP also showed an improvement in the country’s FDI flows, with the May level hitting $1.645 billion, from the previous year’s $677 million.
The five month FDI total was also a 49-percent improvement to $4.85 billion, from last year’s $3.25 billion.
Economists have also earlier expressed optimism on the country’s FDI prospects, with the latest being ING Bank Manila Joey Cuyegkeng.
Cuyegkeng said in his recent research note on the Philippines that FDI net inflow could “rise and change market sentiment again like the fourth quarter of 2017 and lead [the peso] to end the year stronger than forecast.”
He added, “A net inflow of more than $1 billion could see some strengthening of the peso but not as strong as last year’s peso strengthening on the back of foreign-acquisition related net FDI inflows.”
In Cuyegkeng’s view, “A large net inflow may lead us to revise our year-end peso forecast from the current [54:$1] to within the prevailing trading range of 52.80 to 53.55.”