More foreign investments expected to flow into Philippines

The Bangko Sentral ng Pilipinas expects more foreign portfolio investments to flow in, citing projections that the economy will sustain a favorable pace of growth, such as that seen in the first quarter.

Foreign investments in peso-denominated stocks and bonds had been relatively modest this year. But the growth in investments spiked in the past week following developments in Europe, where the leaders agreed to lend to ailing European banks, apart from the upgrade of the Philippines’ credit rating to just a notch below investment grade.

According to BSP Deputy Governor Diwa Guinigundo, most analysts believe that the Philippine economy will perform favorably in the months ahead. That expectation received a boost last week when Standard & Poor’s raised the country’s credit rating.

“This is one of the reasons why people are bringing in their foreign currencies [to buy peso-denominated portfolio instruments]—the economy is fundamentally strong and is expected to stay that way … more confidence, more foreign exchange inflows, stronger peso,” Guinigundo told the Inquirer.

The economy, measured in terms of gross domestic product, grew by 6.4 percent in the first quarter from a year ago. This was faster than the 4.9 percent registered in the same period last year. This was also the second-fastest pace of growth for an Asian country in the first three months of the year following China’s 8.1 percent.

Citing the Philippines’ growing economy, the declining debt burden of the government, and its comfortable level of external liquidity, S&P lifted the country’s credit rating from BB to BB+.

Data from the BSP showed that the country registered a net inflow of foreign portfolio investments amounting to $879 million in the first five months of the year, with the inflows exceeding the outflows. However, this was still down from the $2 billion recorded in the same period last year.

Still, there is a likelihood that net inflow of foreign portfolio investments will rise given improving sentiment on the Philippines, Guinigundo said, noting how portfolio investors last week purchased more peso-denominated securities.

The Philippine Stock Exchange Index breached the 5,000 mark earlier this year and hit a record level of 5,300 just last week.

Also, Guinigundo said the increase in foreign portfolio inflows would keep the peso strong. As a result, he said, the country’s export sector must find ways to remain competitive in the global market.

Although the BSP has been keeping the peso from rising too sharply through its foreign-exchange trading operation, exporters must not rely on the regulator to be competitive, he said.

“What exporters are supposed to do is to improve products, expand markets, quicken turnaround time [for faster delivery of their products to clients], and reduce labor costs by relying more on other forms of compensation for workers,” he said.