‘Hot money’ flight seen to boost PH exports

By: Michelle V. Remo, July 11th, 2013 10:54 PM

The Philippines and other Southeast Asian countries are expected to see their export revenues recover from the recent downward trend, with the depreciation of the peso and other regional currencies likely providing the needed boost.

Moody’s Analytics said in one of its latest papers that the recent outflow of foreign portfolio capital from Southeast Asia may persist over the short term as a result of changing global economic picture.

While capital flight has caused turbulence in the region’s financial markets, the research group said this has the advantage of causing currencies to depreciate against the US dollar. Consequently, it said, exports may recover.

“The downward pressure now facing [the Association of Southeast Asian Nations’] currencies will lift export competitiveness and receipts, with positive knockon effects for output,” the international think tank said in the paper.

The National Statistics Office reported on Wednesday that the country’s export earnings dropped year on year by 0.8 percent to $4.89 billion in May.

This brought the country’s cumulative export earnings to $21.09 billion in the first five months, down year on year by 6 percent.

Neighboring countries suffered a similar trend.

The discouraging export performance of the region is blamed on anemic global demand, which is driven by the lingering economic problems of key export markets, led by the United States, Japan, and the euro zone.

Currency depreciation, however, will help make Southeast Asian goods more affordable to foreign buyers and, therefore, facilitate an end to plummeting exports, Moody’s Analytics believes.

The peso started the year at the 41:$1 territory, but eventually weakened to now hover at the 43:$1 level. Other Southeast Asian currencies had likewise depreciated against the greenback on the back of outflow of foreign portfolio capital from the region.

The move of fund owners to liquidate their portfolio investments came amid views that the US Federal Reserve may soon end its “quantitative easing” (QE) program, under which enormous liquidity is being injected in the financial system through bond purchases with the aim of boosting growth of the United States.

QE-injected liquidity was seen spilling over to emerging Asian economies in the form of fixed-income and equities investments. Therefore, news of a pending end to the QE program has led to projections of dwindling demand for emerging-market assets and has prompted some fund owners to liquidate their positions.

Moody’s Analytics said likelihood that the European Central Bank eventually may also slowdown on its stimulus program could further cause an outflow of foreign funds away from emerging Asian markets.

“Investors are now starting to liquidate their positions in line with the withdrawal of monetary stimulus from the US and eventually Europe. This will continue to put downward pressure on the exchange rates and equity markets across Asean,” it said.

Moody’s Analytics nonetheless said it does not expect the outflow of capital to be dramatic enough to cause a crisis.

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