May surge in long-term foreign investments to PH cushions previous decline

Long term capital from overseas rose sharply in May as foreign investors brought in more equity into their local operations and acquired long-dated debt instruments issued by Philippine entities, according to the central bank.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said foreign direct investments (FDI) net inflows grew by 42.4 percent to $399 million in May 2020 from the $280 million net inflows posted in the same period in 2019.

“The positive growth represents a reversal from the last three consecutive months of decline attributed largely to the weak global outlook and investors’ confidence following the pandemic,” the central bank said.

“The stronger foreign direct investments performance in May relative to the level last year was on account of the increase in non-residents’ net investments in equity capital and debt instruments,” it added.

In particular, net investments in debt instruments grew by 40.8 percent to $236 million from $168 million in May 2019.

Equity capital placements, likewise, increased by 8.1 percent to $80 million from $74 million, while withdrawals decreased by 96 percent to $3 million from US$73 million.

Equity capital infusions during the month came largely from Japan, Singapore and the United States – economies which implemented gradual easing of quarantine measures.

These were invested mostly in manufacturing, financial and insurance, and the real estate industries.

Reinvestment of earnings continued to be weak, though, dipping by 23.7 percent to $85 million during the review period from $111 million.

The double-digit growth in FDI net inflows in May reduced the cumulative decline in the January to May 2020 level to 25.6 percent or $2.4 billion from a contraction of 32.1 percent posted in the first four months of the year.

Total placements in equity capital by May registered a growth of 4.8 percent from 4.4 percent in April. Total equity capital withdrawals for the first five months were lower compared to the same period in 2019.

The cumulative net investments in debt instruments in May, while lower by 46.4 percent year-on-year, eased from 53 percent in April. Total reinvestment of earnings declined by 22.2 percent year-on-year by May.

Equity capital placements during the period originated mostly from the Netherlands, Japan, and Singapore. These investments were channeled largely to the manufacturing, real estate and administrative and support service industries.

The BSP’s reckoning of FDIs include those made by foreign investors in a local enterprise, whose equity capital is at least 10 percent, and investments made by foreign subsidiaries or associates in local units. They can be in the form of equity capital, reinvestment of earnings and borrowings.

TSB