Foreign portfolio investments surged in November

PORTFOLIO investments to the Philippines surged in November due to favorable sentiment brought on by the economy’s robust performance.

Officials said the Philippines, like a few other emerging markets in Asia, has become the preferred site for foreign investors.

The Bangko Sentral ng Pilipinas reported on Friday that net inflow of foreign portfolio investments amounted to $1.01 billion in November.

This was the highest net inflow in about two years, and was more than double the $490.35 million recorded in the same month last year.

Gross inflows reached $2 billion compared with the $1.3 billion a year ago.

The inflows came mostly from the United States, the United Kingdom, Singapore, Luxembourg and Switzerland.

According to the BSP, the increase in foreign portfolio investments was due partly to the surprising growth rate of the Philippine economy and the increase in corporate earnings.

The economy grew by 6.5 percent in the first three quarters of the year, one of the fastest growth rates during the period.

Wary of the threat posed by rising foreign portfolio investments, the BSP is set to implement measures to deal with any potential surge in 2013.

The BSP said “macro-prudential measures” would be more effective and practical than slashing interest rates in addressing a steep rise in foreign portfolio investments.

Macro-prudential measures are bank regulations that ensure stability of financial markets. One such measure is the imposition of higher capital requirement on banks’ holdings of non-deliverable forwards (NDFs), which the BSP enforced earlier this year.

NDFs are hedging instruments that enable enterprises—mainly exporters and importers—to avoid losses arising from foreign-exchange fluctuations. Regulators, however, believe these instruments are being used by banks and their clients in currency speculation.

During a meeting last Thursday, the central bank’s Monetary Board decided to keep its key policy rates steady.

But BSP Deputy Governor Diwa Guinigundo said the move should not be taken as a signal that the central bank does not see any threat of a surge in foreign capital inflows nor does it consider such an event to be unimportant.

According to Guinigundo, the BSP is actually prepared to deal with an excessive rise in foreign portfolio investments, but the action it will take will not involve adjustments in interest rates.

“We believe capital flows continue to be an important issue,” the central bank official told reporters. “We see a threat of [a surge in] capital flows, but macro-prudential measures will be more effective and more applicable in dealing with the impact of such flows.”

He also said other central banks are now using bank regulations to temper the effects of excessive inflows, especially those that involve currency speculation.

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