Long-term investment inflows weaken

In what could be an early indication of weakening long-term equity inflows, the central bank yesterday said only $461 million in foreign direct investments (FDIs) were recorded at the start of the fourth quarter of 2018, confirming a trend that began three months earlier.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the FDIs for October of last year came in 74.2 percent lower than the $1.9 billion net inflows recorded in the same month in 2017, but noted that this was due partly to the so-called base effect of having a high level of investments in the previous period.

“Net investments of equity capital reached $98 million, lower than the year-ago level of $1.5 billion due to the big ticket investments in October 2017,” the BSP said.

On a gross basis, placements of equity capital reached $112 million, which mostly emanated from the Netherlands, the United States, Germany, Japan and Hong Kong.

These investments were channeled mainly to manufacturing, real estate, financial and insurance, electricity, gas, steam and air conditioning supply, and wholesale and retail trade activities.

Investments in debt instruments—consisting mainly of intercompany borrowings/lending between foreign direct investors and their subsidiaries or affiliates in the Philippines—amounted to $331 million from $318 million in the same period in 2017.

Reinvestment of earnings increased by 8.6 percent to $62 million in October 2018.

On a year-to-date basis, FDI net inflows for the first 10 months of 2018 reached $8.5 billion, an increase of 1.8 percent from the $8.4 billion net inflows in the comparable period in 2017. Net investments in debt instruments grew by 18.6 percent to reach $5.9 billion.

Reinvestment of earnings expanded by 2.3 percent to $677 million during the period.

Meanwhile, net investments of equity capital declined to $2 billion from $2.8 billion in January-October 2017. Equity capital placements during the period were sourced largely from Singapore, Hong Kong, the United States, Japan and China.

These were infused largely to manufacturing, financial and insurance, real estate, arts, entertainment and recreation, and electricity, gas, steam and air-conditioning supply activities.

BSP statistics on FDI covers actual investment inflows, which could be in the form of equity capital, reinvestment of earnings and borrowings between affiliates. In contrast to investment data from other government sources, the BSP’s FDI data include investments where ownership by the foreign enterprise is at least 10 percent.

FDI data of investment promotion agencies do not make use of the 10 percent threshold and include borrowings from foreign sources that are nonaffiliates of the domestic company. Furthermore, the BSP’s FDI data are presented in net terms (i.e., equity capital placements less withdrawals), while the other government agencies’ data do not account for equity withdrawals.