Portfolio investment hotspot (Second of two parts)-A A +A
Sunday, February 16, 2014
THE Philippines was a foreign portfolio investment (FPI) hotspot in 2013. FPI flowed into our economy through the Philippine stock market from countries such as the United Kingdom, the United States, Singapore, Luxembourg, and Hong Kong.
The fear of some, however, is that as easily and quickly as these investments entered the economy, they can also go out easily and quickly as well.
Indeed, outflows accelerated from March until June and November last year. In June, US $2.8 billion flowed out of our economy. The sudden pull-out of investments was said to be in reaction to news on the tapering of the US quantitative easing program, which pumps millions of dollars into the global economy.
The speculation is that when the US stops with their bond-buying program, there will no longer be easy money in emerging markets.
Such is the nature of the business. Investors go and take their money to where they think they will earn. That’s why FPIs are also called “hot money.” Trades and sales are done very swiftly and funds keep moving from one market to another, sometimes causing instability.
Fortunately, the BSP says there is no reason to worry even as struggling advanced economies like the US are on the recovery path. The BSP’s Monetary Board – its highest policy-making body – said that our economy will be supported by “buoyant demand, strong fiscal and external positions as well as favorable consumer and business sentiment.”
Our steady macroeconomic fundamentals still make our country a safe and profitable place to make investments.
Apart from FPI, there is another type of investment that foreigners can make in our country. It’s called the foreign direct investment (FDI). This one is long-term in nature and where investors actively participate in the management of the business. Construction of factories, plants, or facilities by multinationals, or their lending or investment of funds to their subsidiaries here are examples of FDI.
A FDI is more difficult to sell or pull out from compared to FPI. This is because it involves not just the transfer of financial assets (stocks, shares) but also of technology and intellectual capital. Nevertheless, both are important and needed by our economy.
Banking on the supposed ability of investors to differentiate markets, the Philippines hopes to continue to get a fair share of both FPIs and FDIs in 2014.
Note: My book, Central Banking for Every Juan and Maria is now available in main branches of Fully Booked, Power Books, National Book Store, and University of the Philippines Press.