Angelo Taningco
Economist, Treasury Group

Foreign direct investment (FDI) net inflows surged 30.6% year-on-year (yoy) to $509 million in March, with the annual growth mainly driven by a relatively sharp increase in nonresidents’ net investments in debt instruments (75.1% yoy) that was partly offset by a 52.9% yoy drop in foreign investors’ net placement in equity and investment fund shares, according to the Bangko Sentral ng Pilipinas (BSP) latest FDI data released on 13 June.

On a quarterly basis, FDI net inflows totaled $1.6 billion in Q1 2017 and this is 16.6% larger than the previous year’s first quarter level as net debt investments soared 108.8% yoy to $1.3 billion, outweighing net placements in equity and investment fund shares, which plunged 59.8% yoy to $294 million. We believe the recent FDI net inflows were induced by positive foreign investor sentiment towards the domestic economy, which has been supported by healthy macro fundamentals and buoyant economic activity in most sectors. Meanwhile, foreign investors’ relative preference for debt versus equity as their mode of FDI financing has been evident in the past four consecutive quarters.

Figure: FDI Net Inflows, by Type
Q1 2015 – Q1 2017
($ million)

 
We believe the positive FDI growth will be sustained throughout the rest of the year amid the robustness of the Philippine economy, and that it is probable for FDI net inflows this year to breach last year’s record-high level of $7.9 billion: more specifically, we forecast FDI net inflows this year to post 3.4% growth and reach $8.2 billion.

With our view of a continual growth in FDI net inflows, we conjecture that this will contribute to the growth and development of the domestic economy. This is because FDIs are known for its positive economic effects such as physical capital accumulation, technology transfer and knowledge spillovers, more intense market competition, and raising firm productivity, all of which are important in promoting economic growth and development.

Disclosures Appendix
This material is confidential and intended for suitable counterparties. The data and information provided in this report accurately reflect the personal views of the specialists or were obtained from public sources believed to be reliable. No representation or warranty as to its accuracy or completeness, express or implied is hereby made, and the investor should not rely thereon without making any independent analysis or research on any topic therein. Any opinion or advice expressed herein may change without notice.

This report is not to be taken as an offer to sell or buy securities or any investment. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct or consequential damage from the use or reliance on any material hereof. Reproduction of this material, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation, its directors, officers or staff or any of its subsidiary or affiliates may have taken a short or long position in any investments or securities mentioned herein upon the presentation of this report and may buy or sell the investments or securities at any time in the open market or otherwise, either as broker, dealer, principal or agent.