April FDI inflows surge to $2.2B

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Monthly net is a record high; yr-to-date inflows up 183.6%

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FOREIGN direct investments (FDI)in April registered a record-high net inflow of $2.2 billion, a 476.1-percent surge from the $382 million recorded in April 2015, with net inflows recorded largely in debt instruments and equity capital, the central bank said.

The nearly five-fold growth in April net inflows boosted FDI for the first four months of the year to $3.49 billion, 183.6 percent higher than the $1.23 billion recorded in the same period a year earlier, the Bangko Sentral ng Pilipinas (BSP) reported on Monday.

“The surge in FDI inflows is reflective of the favorable investment climate as the country continued to post strong growth and show even better growth potentials,” the BSP said in a statement.

The BSP said the bulk of net inflows during the month were in the form of intercompany borrowings or non­residents’ net placements in debt instruments issued by local affiliates.
Net investments in debt instruments grew by more than four times to $1.3 billion in April, up 496.1 percent from $262 million a year earlier.

Non-residents’ net investments in debt instruments for January to April reached $1.92 billion, 179.4 percent higher than the previous year’s $687 million.

Energetic equities market
An equities analyst said at least three factors could have contributed to the surge in the flows toward debt instruments: firms’ economic outlook, low interest rates, and what avenue to favor in raising needed funds.

Justino Calaycay, A&A Securities Inc. marketing and research head, said companies’ outlook for the broad economy is clearly tied to their own prospects.

“So far, so good. Most of the criticisms directed at the new administration have focused on its ‘police work’ but the economic policies have been left untouched. This is consistent with it post-election, pre-inaugural commitment to stay the course insofar as the economy is concerned,” he said.

Calaycay also noted that businesses in general are in agreement with the 10-point socioeconomic agenda of President Rodrigo Duterte’s administration.

“This ‘industrial’ peace, if you will, coupled with strong statements and actions towards ‘social peace’ gives business the ‘green light’ to proceed ‘as-usual’,” he added.

Second, the analyst noted that interest rates in the Philippines are still low, so those who may have plans to expand existing operations or to venture into other fields may have opted to front-load their borrowings in anticipation of a longer-term upward bias to rates, given the outlook for policy adjustments by the US Federal Reserve.

Third, Calayacay stressed that the equity market has continued to push higher and effectively raise stock valuations.

He noted that as of Friday last week, trailing earnings are already at the 22 times level, which puts the Philippine Stock Exchange index among the more expensive equity markets in the world.

Despite the high valuation, Calaycay noted, “We have managed to keep our attractiveness given that we remain among the world’s top 10 best performers index-wise,” he said.

Wait-and-see
Meanwhile, an economist from the University of Asia and Pacific (UA&P) said FDI might not ramp up quite as strongly for the rest of this year as investors are still observing the policies and actions of the new administration.

“FDI more or less is not going to ramp up soon because they [investors]will see how the new administration actually perform, if it ‘walks its talk.’ So they will be observing,” UA&P economist Dr. Victor Abola, said.

But going forward, Abola said he is seeing “a very strong push in FDI” probably in the first half of 2017.

“It depends of how the cards are played. But so far, [government]statements are very good, and let’s see the follow-through in terms of actual action on the ground,” he said.

Abola added that over time, the share of Philippine FDI in the Association of Southeast Asian Nations would also increase “because as the President [Rodrigo Duterte] makes doing business easier and there have been a lot of changes in the rules of the game.”

Other components
Among other FDI components, net equity capital investments expanded by an astonishing 3,199 percent in April to $825 million from $25 million a year earlier. Equity capital placements of $839 million more than offset withdrawals of $13 million.

On a year-to-date basis, investments in equity capital registered net inflows of $1.32 billion during the period from $279 million last year.

The bulk of equity capital investments for the month came from Japan, the United States, the Netherlands, Germany and Taiwan, and were channeled mainly to financial and insurance; real estate; manufacturing; wholesale and retail trade; and administrative and support service activities.

Reinvestments of earnings, however, declined 8.5 percent to $74 million from $81 million a year earlier in April.

Reinvestments of earnings for the four months to April decreased by 4.1 percent to $255 million from $266 million a year ago.

The BSP has a $6.3-billion target for this year. Last year saw net FDI hitting $5.72 billion, falling short of the $6-billion forecast.

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