September inflows fail to lift hot money year to date — BSP

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MORE foreign funds entered the country in September as investors saw the first of up to five tax reform packages — lynchpin of an P8.44-trillion infrastructure development program — progress through the Senate that month, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Foreign portfolio investments — which are often called “hot money” as these enter and leave the country with ease — posted a $112.63-million net inflow last month, turning around from a $57.52-million net outflow in August and the $807.15 million that left the Philippines a year ago.

Foreign investors saw the Philippines as a favorable site for short-term placements in September, partly in the wake of the Aug. 22-Sept. 19 Chinese “ghost month” that discouraged them from making big bets.

Foreign investors plunked in $1.297 billion in the country in September, 38.49% more than August’s $936.28 million and 1.81% more than a year-ago’s $1.274 billion.

Last month’s $1.184-billion outflows were 19.14% more than August’s $993.8 million but were 43.1% less than the $2.081 billion that left the country in September last year.

“This may be attributed to investor reaction to the extension of the debt limit deadline in the United States and the Philippine Senate’s approval of the first package of the government’s tax reform program,” the BSP said in a statement.

On Sept. 21, the Senate Committee on Ways and Means approved its version of the first of up to five tax reform packages that are supposed to help finance the administration’s ambitious public infrastructure development program that will see annual spending on this item hit P1.899 trillion, equivalent to 7.45% of gross domestic product (GDP), in 2022 from the P847.22 billion, or 5.32% of GDP, programmed this year.

The development paves the way for plenary discussions and approval by that chamber which would bring the measure closer to the January 2018 implementation eyed by the Department of Finance.

The same optimism was cited by the central bank when the House of Representatives approved its version, House Bill No. 5636, on May 31, stoking investor appetite and bringing June hot money back to net inflow territory.

Last month also saw US President Donald Trump enact a bill to extend the government’s debt limit for three months and provide about $15.25 billion in storm-related assistance.

Roughly 80.9% of September’s investments were infused in shares in publicly listed companies — holding companies; property firms; banks; casinos and gaming firms; as well as food, beverage and tobacco companies — yielding a $42-million net outflow.

Nearly a fifth of inflows were invested in peso-denominated government-issued debt papers, which resulted in a $150-million net inflow.

Placements in peso time deposits brought in $5 million, the central bank said.

The United Kingdom, the United States, Singapore, Norway and Luxembourg were the biggest sources of foreign funds last month, accounting for 79.4% of total inflows.

“The US continued to be the main destination of outflows, receiving 79.1% of total remittances,” the BSP noted.

However, September’s inflows were not enough to pull the year-to-date tally higher, resulting in a $206.25-million net outflow that was a reversal from the $1.267-billion net inflow in 2016’s comparable nine-month period.

Concerns about a looming rate hike by the US Federal Reserve, global terrorist attacks and North Korea’s missile tests continued to spook investors.

BSP added that the impact of the government’s crackdown earlier this year on miners deemed violating environment laws also had a telling impact on sentiment.

The central bank sees a $900-million net outflow for the entire year, reversing from the $404.43-million net inflow of flighty foreign funds in 2016.

The BSP yesterday also allayed concerns that the Philippine economy has lost its appeal as an investment destination as foreign direct investments (FDIs) have dropped from a year ago.

Permanent investments to the Philippines totalled $3.904 billion as of July, down 16.5% from the $4.677 billion recorded in 2016’s comparable seven months.

“Data showed that the significant inflow noted last year was attributed to a large investment flow that went to the financial and insurance industry,” the BSP said in a separate statement, citing 2016’s high base.

“Year-on-year growth rates can be affected by the timing of entry of big ticket items, with resulting base effects. Thus, the monthly profile of FDI flows can be volatile and may not exhibit a smooth upward trend due to its lumpy nature.”

To recall, the Bank of Tokyo-Mitsubishi UFJ infused P36.9 billion as a one-time investment in April last year, as it bought a 20% stake in Security Bank Corp.

The central bank clarified that conditions remain “favorable” as far as the Philippine economy is concerned, with investors looking for better yields amid subdued global growth and robust macroeconomic performance locally.

The Philippine economy grew 6.4% during last semester, one of the fastest recorded among major Asian economies. The BSP expects another banner year for FDIs at $8 billion, nearly matching last year’s level.

“There is a huge potential in attracting further FDIs, which can put the country at par with the large levels of FDI seen in neighboring Asian countries. Such potential can be realized by reforming the rules on foreign ownership, addressing infrastructure gaps and reducing the cost of doing business,” the central bank said.

The current administration has committed to relaxing investment restrictions and trimming red tape to make it easier for companies to do business here. — Melissa Luz T. Lopez