By Melissa Luz T. Lopez
Senior Reporter

SUSTAINED investor optimism over enactment in December of the first of up to five planned tax reform packages drove more foreign funds to the Philippines that month, leaving the full-year net outflow smaller than the central bank’s projection.

Foreign portfolio investments posted a $456.93-million net inflow last month — the biggest amount in 17 months — more than four times the $107.71-million net inflow in November and a turnaround from the $314.65-million net outflow in December 2016, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

These investments are often called “hot money” as these enter and leave the country with ease.

December marked the second straight month of net inflows with the biggest amount since the $1.067 billion posted in July 2016.

Progress on the first tax reform package was a key driver for investor confidence in 2017, the central bank said. Optimism has been fueled since the Tax Reform for Acceleration and Inclusion (TRAIN) moved at the House of Representatives in May, culminating with its enactment on Dec. 19.

December saw the Philippine Stock Exchange index sustain its rally to close at 8,558.42 as a new peak on the last trading day of the year. The peso also traded at the P49 level against the greenback that month, its best performance in six months.

The Philippines’ rating upgrade from Fitch Ratings, a stable inflation and policy rates, and the government’s issuance of P255 billion in retail Treasury bonds also fueled optimism among foreign investors, Security Bank Corp. economist Angelo B. Taningco said via e-mail.

Fitch raised the country’s credit rating to “BBB”, one notch above minimum investment grade, with a “stable” outlook to match the ratings given by other international debt watchers.

Global investors went to place $1.559 billion in the Philippines — the biggest gross inflow since June’s $2.016 billion — which was partly offset by $1.102 billion plucked out of the country. These amounts compare to the $1.055-billion inflows and $1.37-billion outflows in December last year.

FED POLICY NORMALIZATION WEIGHS
Still, the full-year tally amounted to a $205.03-million net outflow, a reversal from 2016’s $404.43-million net inflow.

But this is smaller than the $2.5-billion hot money net outflow expected by the central bank for 2017.

“It’s still part of the negative sentiment in other countries in the emerging markets in the face of the expected US Fed normalization. In effect, people are more gung-ho about prospects in developed economies like the US,” BSP Deputy Governor Diwa C. Guinigundo told reporters yesterday.

International investors placed $16.063 billion in total funds last year, which was offset by $16.268 billion that they pulled out of the Philippines.

The second quarter saw the biggest net inflows amid “accelerated” net foreign buying, partly on the World Bank’s positive comments about the Philippines.

“[W]hile net outflows were noted starting in the first quarter of the year attributable to international and domestic developments, the figure has subsequently declined as investors reacted positively to the various developments in the country,” the BSP said in a statement.

The United Kingdom, United States, Singapore, Luxembourg and Malaysia were the biggest sources of foreign investments in 2017, accounting for three-fourths of the total.

On the flip side, 80.2% of the outbound capital fled to the US.

“The ‘noises’ of 2017 seem to have been muted by many investors, both foreign and local alike. This is evidenced by the generally positive sentiment about the economy and its stable macroeconomic fundamentals despite all the doubt and fear about the fate of the economy under (President Rodrigo R.) Duterte,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said separately.

The BSP has said that concerns over interest rate hikes from the US Federal Reserve coupled with uncertainty towards the local mining industry hounded business sentiment in 2017.

The Fed increased policy rates three times last year and has held on to plans for additional rate hikes in 2018.

Despite this, local financial markets rallied in December on optimism fueled by tax reform.

Philippine policy makers have said that they need not move in step with the Fed as domestic conditions remain favorable.

The central bank expects $900 million in net outflows this year.

“The next phases of the tax reform package in the latter part of 2018, including the proposed general tax amnesty, as sources of additional government revenues and overall fiscal performance improvements, would be a future source of positive sentiment on the local financial markets,” said Michael L. Ricafort, economist at the Rizal Commercial Banking Corp.

The rollout of more infrastructure projects would also support business optimism, he added.

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