Citi also bullish on PH, other Asian economies

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Global banking group Citi has joined the growing list of foreign banks that have turned bullish on Asia, saying key economies in the region are becoming the new “safe haven” for portfolio investments on the back of lingering problems in the United States and the Europe.

In a report on its latest outlook for the global economy and for Asia, Citi said emerging markets in Asia were likely to attract more hot money given the changes over the past few years in the contributions of various economies to global growth.

Since the latest global economic crisis, which was punctuated by a recession for many industrialized counties in the West in 2009, Asian economies have been drivers of the global economy.

Meantime, the international financial services firm also said the shifting policy in China toward a more market-determined exchange rate for the renminbi would attract more investments to the East.

Citi said Asia has been stealing the image of the United States and other advanced economies as a safe haven. “Growing confidence over Asia’s growth resilience, strong external and fiscal balance sheets and expectations of some Asian currencies decoupling from (the US dollar index) on the back of regime change in China’s foreign exchange policy toward a more market-based RMB (renminbi) will reinforce the perception of Asian fixed-income market receiving ‘safer-haven’ flows,” Citi said in the report.

In the case of the Philippines, foreign portfolio investments have been partly credited for fueling the significant appreciation of the peso so far this year. The local currency, which has touched the 40-to-a-dollar level Tuesday, has already appreciated by nearly 7 percent since the start of the year.

Documents from the Bangko Sentral ng Pilipinas showed that the country recorded a $2.97-billion net inflow of foreign portfolio investments since the start of the year to November 9. This was lower than the $3.79 billion in net inflow in the same period last year but was significant enough to put an appreciation pressure on the peso, traders said.

According to Citi, central banks of some Asian countries might be prompted to implement policies restricting the entry of foreign portfolio investments given the exchange-rate volatility that these inflows were causing.

Although foreign investments were welcome, economists said too much of such funds could be destabilizing to an economy and the resulting volatility in the exchange rate would be bad for business.

In the case of the Philippines, the central bank said it was not poised to impose restrictions on foreign capital flows. While agreeing that excessive foreign portfolio investments have adverse consequences, the Bangko Sentral ng Pilipinas said outright restriction of foreign capital could drive away even the essential investments.—Michelle V. Remo

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