PH seen to weather capital flight

‘Most insulated’ to Fed tapering, China slowdown


While inclement weather continued to sideline Philippine markets, Asian emerging markets are likewise battling a “storm” arising from a capital flight to developed markets in anticipation of the US Federal Reserve’s tapering of its easy money policy. INQUIRER FILE PHOTO

While inclement weather continued to sideline Philippine markets, Asian emerging markets are likewise battling a “storm” arising from a capital flight to developed markets in anticipation of the US Federal Reserve’s tapering of its easy money policy.

Emerging markets are suffering from weaker sentiment as investors become fearful that Federal Open Market Committee (FOMC) minutes and the Jackson Hole meeting this week might result in policy changes that will divert capital away from the emerging world, investment bank Credit Agricole CIB said in a research note issued Tuesday.

Indonesia and India’s assets were under the most pressure due to vulnerability concerns arising from their current account deficits, Credit Agricole said.

In a separate note yesterday, Citigroup said the Philippines seemed the “most insulated” to both US Fed tapering and a China slowdown. “It has a very strong net external position, making it more insulated from taper; Philippines weakness has generated a positive income shock via the remittance channel; BSP (Bangko Sentral ng Pilipinas) is still easing liquidity, and it has limited trade linkages to China demand,” Citi said.

Central bankers and policymakers are set to meet in Jackson Hole, Wyoming, from Aug. 22 to 24 to discuss global economic and monetary issues. On the other hand, the minutes of the latest US FOMC meeting were expected to provide more clues to the Fed’s $85-billion monthly bond buying, which many are expecting to taper by next month.

Credit Agricole said the only positive story out of Asia yesterday was the announcement that China’s central bank would boost financial support for the economy and fine-tune its policy in the second semester.

This suggests sustained stimulus in China in support of a 7.7 percent growth this year, Credit Agricole said.

For its part, Citigroup said growth risks from Fed tapering were likely to impact “deficit” and portfolio-dependent countries more, thus a bigger concern for current account deficit countries like India, Sri Lanka and Indonesia and, more recently, Thailand.

It was reported Tuesday that Thailand had entered a recession. Malaysia also looked relatively vulnerable given the large role of portfolio inflows, Citi said.

Infrastructure development is increasingly becoming more attractive to policymakers in emerging economies facing slowing economic growth but there is no automatic growth response to such. Instead, Citi said it would likely further erode the balance sheet strength that used to be a pillar of the EM story for investors.

Citi said the ability of monetary conditions to adjust would vary across Asia.

Indonesia was cited as the most under pressure to increase policy rates to mitigate the impact of its external imbalances amid already high inflation, given its pursuit of a less flexible exchange rate policy.

On the other hand, Citi noted that India had unexpectedly pursued measures aimed at curbing currency volatility by tightening liquidity and short-term borrowing costs. Given weak growth and moderating core inflation, Citi said these measures were time-bound.

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  • eight_log

    Only remittance from OFW is insulating the Philippines from internal and external pressures. This insulation does not extend to the stock market … OFWs invest into real estates as a hedge for currency devaluation and/or lowered currency purchasing power.

    Indian or Indonesian OFWs are more into precious metals … these metals are becoming less precious and besides these are kept in the house and therefore has a negative effect on the economy!

    • LV_cipher

      “Indian or Indonesian OFWs” (Overseas Filipino Workers)? Weh? You mean OIW (Overseas Indian Worker or Overseas Indonesian Worker)? LOL ;-)

      • eight_log

        Overseas Foreign Workers ….lol

  • LV_cipher

    Brace for a mini-crash tomorrow when trading resumes. Seems FIIs are a little bit panicky these days as was seen with other SEA countries and India over the past few days. A little knock on effect to local bourse tomorrow is expected.

  • joni_depp

    Watch these bankers as they engage in double-speak. “Insulated from Fed tapering and China slowdown” simply means that the Philippines has little to lose by way of FDI’s because it has received very small amounts of FDI’s to begin with. And the China slowdown won’t affect us as much as, say, Australia or Indonesia, because China imports very little from us compared to other countries. When you are at a low base, you cannot fall too far.

  • carlcid

    Weathering capital flight does not equate to retracing previous lofty levels. It simply means slogging along, hopefully without major snafus. What it also means is that it gives the lie to the boastful propaganda of the PNoy administration that “the Philippines is an investment oasis in the midst of economic turmoil in the world”, in the words of Malacañang spokesperson Edwin Lacierda.

    In short, the Philippine economy was boosted by Quantitative Easing, not by Aquino’s governance. And the Philippine economy’s fortunes will ebb and flow accordingly. Just as other emerging market countries. Not because it is an investment oasis in the midst of economic turmoil.

    • TV

      Indeed, Pnoy should thank QE for the market bull run, which is not unique to the Philippines – a very insignificant economy in the overall scheme of things.

  • Unicahija

    Now, Citigroup says PH to weather capital flight.
    Last week, S&P says PH might earn a downgrade if one conglomerate defaults.
    Months ago, IMF warns that one conglomerate is over-leveraged and might default.

    If and when capital flight happens, speculative portfolio and hot money exits PH, dollar reserves go down, peso weakens against the dollar, conglomerates that borrowed heavily in foreign denominated currency will find themselves with heavier loans to pay back (if they’re not earning in dollars). Example — the Lopez Group in 1998

    Ordinary folks will just have to settle for cheaper domestic products than more expensive imports, not unless these are commodities that cannot be substituted such as fuel and others.

  • txtman

    ___________ BOBO KA BA? ________
    ____ BAKIT_______

    • linobog

      Hindi pa nagising,…gusto pa rin niya si gloria, erap, marcos, enrile……. seguro malapit na to mahuli dahil nakakuha din sa pork barrel ng mga tongressman.

  • TV

    Remittance, remittance, remittance…this is the only thing that keeps the Philippines afloat. I wish there will come a time when analysts will also mention government’s positive role in boosting the economy. Instead of being an enabler of progress, government becomes a stumbling block. And this will continue to be so if the Aquino administration remains defiant against the Filipinos’ overwhelming opposition against the pork barrel – the root cause of corruption in the Philippines, and the foundation upon which the Philippines’ flawed political system (read: political dynasties) stands.

    • ern

      You run for president and become a dictator….change the constitution….and your wish will come true.

      The role of government is almost purely administrative and not investor or business operator. It relies on taxes and duties. The OFW’s contribution is not money given to the government….but rather inflow medium for dollars to come into the financial system, The money remains owned by the recipients/dependents/beneficiaries. The government is buying those dollars to boost its dollar reserves to have enough dollars to sell to importers/private investors, and for the government to have dollar denominations to buy/import equipment from abroad.

      • Garo Ungaro

        Let just the be honest about the contributions of this remittances. The in flow of dollars helps our dollars reserve. The remittances sustained temporarily our dollar reserve in continuing our economic dollar trades even if there’s aberrations in the unpredictable international markets like capital flights and other international dealings. We are just thankful, we have this remittances coming in.

      • TV

        I’m with you on the role of government – they have no business being in business. By ‘enabler of progress,’ I mean government playing a positive role in creating an environment conducive to business – infrastructure, stable policies, fiscal stability, transparency and level playing field.

        Agree with you on the remittances – they are not owned by government, hence government does not get any credit for it. Perhaps the Central Bank for their monetary policy skills?

        And yes, we do need a change in constitution – what we have is an obsolete document that is not in tune with the modern ways of business in a globalised economy.

    • 444mangyan888

      It is a sad note in our country’s economic landscape. But the positive impact of OFW remittances is not at all a political issue and should not be treated as mere cushion or primer for national economic activity. Though we do not take it against the government if it takes it that way.
      Sa amin la-ang naman, lalo dine sa “mainit-na-buhangin country”, help us naman to discover ways on how to make ourselves more productive with our hard earned money.
      Teach us, train us and help us prepare ourselves when our employers can not hire us anymore bcuase we have gone old.
      Is it a tall order for gov’t to pursue..?

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