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Larger Net Inflow from Foreign Portfolio Investments Recorded in June

07.13.2006

Transactions in Bangko Sentral-registered foreign portfolio investments in June resulted in another net inflow in the amount of US$106.3 million, up by 39 percent from May’s US$76.4 million.  This development indicated continued positive foreign investor sentiment owing to favorable economic reports such as the 5.5 percent GDP in the first quarter, the lower-than-expected inflation rate of 6.9 percent in May, and the consecutive budget surpluses in April and May.  The positive sentiment overshadowed concerns over further interest rate hikes by the U.S. Federal Reserve Board to stem inflation, which may cause global economic growth to slow and make assets in emerging markets such as the Philippines less attractive to investors.  

New investments in June amounted to US$736.2 million (of which 56 percent were in peso-denominated Treasury securities and 44 percent in shares listed in the Philippine Stock Exchange (PSE)-listed shares), exceeding capital repatriations/outflows of US$629.9 million, mainly from divestments from government securities.

During the first semester, registered foreign portfolio investments* and capital repatriations/outflows totaled US$3,360.2 million and US$2,586.6 million, respectively, for a net inflow of US$773.6 million. Investments consisted primarily of PSE-listed shares of US$2,346.9 million (70 percent of total), of which the main beneficiaries were the telecommunication, property, banking, and food, beverage and tobacco sectors.  The other investments were in peso-denominated government securities of US$984.4 million (29 percent); and money market instruments of US$27.9 million and peso bank deposits of US$1.0 million (for a combined 1 percent share).  The investments were funded with fresh inward remittances of foreign exchange converted into pesos through banks operating in the Philippines,   80 percent of which originated from Singapore, the United States and the United Kingdom.  

Foreign investments in PSE-listed shares declined by 8 percent or US$202.4 million from the year-ago level as there were less initial public offerings (IPOs) this year compared to last year.  Nevertheless, several corporations in various industry sectors reported large first quarter profits.

Similarly, foreign investments in government securities were US$143.0 million or nearly 13 percent lower this year against last year, partly because of the reduced volume of government securities issued by the Bureau of the Treasury following the government’s improved budgetary position.

Meanwhile, capital repatriations rose by 47 percent from the year-ago level, accounted for largely by the US$1,198.1 million outflows pertaining to divestments from government securities (46 percent of total) which increased by 123 percent. This developed as foreign investors engaged in profit taking from the appreciation of the peso during the first four months of the year and cut losses from the generally depreciating trend of the peso in the past weeks. 

Divestments from PSE-listed securities and withdrawals of peso deposits comprised US$874.8 million (34 percent) and US$513.7 million (20 percent) of total outflows, respectively, 13 percent and 15 percent more than corresponding levels in 2005.  Peso deposits withdrawn for outward remittance mainly represented proceeds of earlier divestments from PSE-listed shares and government securities.

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