Portfolio funds seen to stay on downward path

Foreign portfolio investments in October are expected to decline further as fund owners are seen holding on to cash instead of buying emerging-market securities, waiting for favorable developments in the eurozone.

In the first two weeks of October, net inflow of investments amounted to just $58.94 million, down by 86 percent from $425.89 million.

Market players said the figure in the first two weeks indicated that the net inflows for the entire month of October could be lower than that of the same month last year.

In September, investors started to show signs of impatience over the prolonged crisis in the Euro zone. This resulted in the pullout of securities investments in some emerging markets like the Philippines, causing Asian currencies to depreciate against the US dollar.

Investors wanted to stay liquid and held on to their dollars until policymakers in Europe came up with a concrete solution to resolve the ongoing crisis in the West.

In September, net inflow of foreign “hot money” to the Philippines dropped by nearly 70 percent to $149.68 million from the $494.05 million reported in the same month of the previous year.

This development marked a reversal of a sharp uptrend in the flow of portfolio money into the country, which was observed in the previous months of this year.

Analysts earlier said that investors were pouring in portfolio funds to emerging markets because these economies appeared to be performing better than advanced economies in the West.

However, they said the prolonged crisis in the eurozone had stirred concerns that emerging economies could eventually suffer.

This is because the West is one of the biggest export markets for emerging economies. Moreover, it serves as host to a significant number of migrant workers, including Filipino workers.

Last Wednesday, however, sentiment of portfolio fund owners was revitalized with the announcement of a deal struck by European policymakers to firmly address the crisis.

Market players said this might not be enough to pull up net inflows in October, adding that a rise in foreign portfolio investors could start in November.

One of the key elements of the package of reforms is the move to let holders of Greek bonds, led by banks, to absorb a 50-percent loss.

This is to prevent Greece from becoming insolvent.

Another measure to be undertaken is the continued purchase of the European Central Bank of securities from the secondary market as a means to inject liquidity in the region.

Also, the International Monetary Fund is expected to increase its financial support to debt-ridden countries in the region.

BSP Governor Amando Tetangco Jr. said last week that the set of measures in the eurozone is expected to help calm the markets and bring back foreign portfolio investments into emerging economies like the Philippines.—Michelle V. Remo