Foreign capital will continue to flow in, says BSP

THE BANGKO Sentral ng Pilipinas said foreign portfolio investments would stay strong throughout the year even if the debt crisis in Europe were to persist.

BSP Deputy Governor Diwa Guinigundo said that based on observations by the monetary authority, significant liquidity among foreign investors and encouraging economic fundamentals of emerging markets would continue to attract foreign capital to developing Asia.

He added that, for the Philippines in particular, foreign portfolio investors would keep on buying portfolio instruments, led by government securities, due to sound macroeconomic fundamentals.

Guinigundo was referring to the country’s improving debt ratios, rising reserves of foreign currencies, and a growing economy.

Guinigundo said growth in foreign portfolio inflows would not likely decelerate significantly even with the ongoing fiscal turmoil in some countries in the Euro Zone, led by Greece.

Latest data from the central bank showed that year-to-date net inflows of foreign portfolio investments into the country—from January to June 17—amounted to $2.29 billion, surging from only $696.52 million in the same period last year.

The debt woes of Greece and neighboring European countries have shaken up market. These concerns led to the depreciation of emerging market currencies, including the peso.

This is because the debt woes of Greece have prompted some investors to stay “safe” by shifting to US dollar-denominated assets or just stay liquid by holding on to their cash.

But according to the BSP, any negative impact of the debt problems in the West has so far remained insignificant. The monetary authority cited data on foreign portfolio inflows to back up its claim.

“There is risk aversion [against European economies] in favor of emerging markets like the Philippines,” Guinigundo told reporters.

The European Union and the International Monetary Fund have prepared a bailout package for Greece to keep the country from defaulting on its loans—something that could rattle the international financial community.

However, the aid would only be given once Greece has implemented painful austerity measures, which include huge spending cuts and tax hikes.

Investors have the tendency to manifest a “herd behavior,” which may happen when investors move away from Greece and then move away from all emerging markets, Guinigundo said.

But so far this year, foreign investors have signaled their preference to remain in emerging Asian markets like the Philippines. This development will likely result in a strong inflow of portfolio investments throughout the year.