Angelo Taningco
Economist, Treasury Group
Foreign portfolio investments (FPIs) into the Philippines were bigger in December compared to November and we think this was on the back of investor optimism fuelled by the ratification of TRAIN, Fitch’s credit rating upgrade, stable inflation, steady monetary policy settings, and government’s issuance of retail treasury bonds. On an annual basis, FPIs shifted to net outflows in 2017 from net inflows in 2016; we think net outflows will likely persist this year on expectations of more US rate hikes, higher domestic inflation, and sharper peso depreciation.
FPI net inflows rose to $457 million in December from $108 million in November as gross inflows surged 38% mom to $1,559 million but gross outflows rose by only 8% mom to $1,102 million. All weeks in December recorded net inflows.
The full-year FPI shifted to a net outflow of $205 million in 2017 from its 2016 net inflow level of $404 million; this monthly swing, we believe, was largely related to government’s closure order of numerous mining firms and martial law extension in Mindanao as well as policy rate hikes and progress in the tax reform agenda of the US. However, 2017’s actual FPI net outflow level was smaller than the BSP’s $2.5 billion net outflow forecast, and we think the below-than-expected figure was partly due to robust economic growth and stock market performance, manageable inflation and external deficit, and modest peso depreciation. PSE-listed securities accounted for 82% of FPIs last year and 17.5% were in government securities.
This year, we think FPI flows will register another net outflow position since we expect further US rate hikes, higher domestic inflation, and a sharper depreciation in the Philippine peso vis-à-vis the US dollar, among others. The central bank expects FPI net outflows to reach $900 million for the year.
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