Negative sentiment toward emerging markets globally may affect the stream of long-term, job-generating foreign investments to the Philippines, a senior central bank official warned.
Foreign direct investments (FDI) so far remained steady, as the latest data from the Bangko Sentral ng Pilipinas (BSP) showed that long-term bets on the country had reached record highs as of July.
Citing the volatility of foreign portfolio investments, or “hot money,” because of the shifting sentiment of global fund managers, BSP Deputy Governor Diwa C. Guinigundo warned that the flow of FDIs to the Philippines could also suffer from the negative perception, regardless of the Philippine economy’s own stability.
“Our problem is the direction of capital flows. These are portfolio investments, but sometimes, even FDIs are affected by this sentiment,” he told reporters during the weekend.
Data released earlier this month showed that foreign portfolio investments, which are short-term placements in stocks, bonds, and deposit certificates, stood at a net outflow of $324.12 million in September, ending a five-month streak of inflows. Net outflow means more money left the country than the amount that came in.
FDI data, which is released with a two-month delay relative to the hot money report, showed a net inflow of $4.01 billion from January to August—higher than the $2.57 billion recorded in the same seven-month period of 2013. The target for the year, set at $2.6 billion, has already been breached.
While hot money flows are seen as an indicator of the market’s confidence in the Philippine economy over the short term, FDIs are regarded to be a more substantial vote of confidence in the country’s long-term prospects.
FDIs come in the form of multinational companies’ reinvested earnings in the Philippines, the same companies’ lending to local affiliates and subsidiaries, and new substantial investments by foreign firms. The money goes to the construction of new manufacturing and service facilities, which contributes directly to job generation.
If foreign investors were to look only at the country’s economic condition, they would have enough reasons to stay for the long run, Guingundo said.
“If they are just looking at the fundamentals, I think we should merit a higher share of FDIs because macroeconomic conditions continue to improve,” he said. “The government is also attempting to set the stage for more infrastructure and power. So, if they are there for the long haul, there is every reason for them not only to stay, but relocate here in the Philippines.”