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Foreign Portfolio Investments Post Net Outflow in August

09.13.2007

August 2007 Flows

Bangko Sentral-registered foreign portfolio investments posted a net outflow of US$246.4 million in August, the only monthly net outflow recorded this year to date, and a sharp reversal of the substantial US$1.1 billion net inflow in July.  Concerns over the extent and impact on the global credit market of the US subprime mortgage problem led foreign investors to stay on the sidelines.  Strong domestic economic data (e.g., 7.5 percent second quarter GDP growth, US$1.1 billion OFW remittances in June and P1.6 billion budget surplus in July) as well as strong corporate earnings results for the first semester, however, tempered the size of the net outflow.

On a gross basis, registered foreign portfolio investments 1  in August aggregated US$1.4 billion, 85 percent of which were in shares listed in the Philippine Stock Exchange (PSE) and 15 percent in peso-denominated government securities, primarily Fixed Rate Treasury Notes or FXTNs.  Over three fourths of the investments in listed shares were distributed among banks and property, telecommunication and utility firms.  These inflows exceeded capital repatriations of over US$1.6 billion, which pertained to the following:  a) divestments from PSE-listed shares (36 percent); b) divestments from government securities (18 percent); and c) withdrawals of money market placements and peso deposits 2  (combined 46 percent share).

January-August 2007 Flows

For the first eight months of the year, newly-registered foreign portfolio investments and capital repatriations/outflows totaled US$11.2 billion and US$7.9 billion, respectively, for a net inflow of over US$3.3 billion.  This net inflow was 3.3 times the US$1.0 billion net inflow for the comparable period in 2006.  The nervousness in the market sparked by the US mortgage crisis led to some outflow during August but overall, the country’s economic fundamentals appeared to have broadly kept investors’ interest in the Philippines for the first eight months of 2007. Moreover, the BSP’s announcement that local banks have no exposure to subprime assets also helped ease investors’ concerns.

Gross investment inflows of US$11.2 billion (up by 163 percent from 2006) went primarily to PSE-listed shares of US$9.3 billion (83 percent of total and 3.1 times the comparable amount in 2006).  Property, telecommunication, utility and holding firms captured 74 percent of investments in said shares.              Peso-denominated government securities, primarily FXTNs, accounted for about US$1.8 billion (16 percent) of the investment inflows while money market instruments and peso bank deposits had a combined share of   1 percent.  The United Kingdom, the United States and Singapore were the top sources of investment funds throughout the period.

Meanwhile, gross capital outflows of US$7.9 billion for the period more than doubled from last year as investors found the peso appreciation advantageous for profit-taking activities.  The outflows arose from divestments from listed shares (46 percent of total), government securities (21 percent) and withdrawals of money market placements/peso deposits (33 percent).

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1 These statistics, which pertain to newly registered investments, are different from foreign portfolio investments in the balance of payments which represent actual flows during the period under review.

2  Generally represent temporary placements of sales proceeds from divestments from listed shares and government securities.

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