Data from the Bangko Sentral ng Pilipinas (BSP) showed that net portfolio investments increased by a hefty 69 percent during the first seven months of the year, from $185.5 million last year to $313.4 million this year.
However, the growing optimism was quickly snuffed out during the final week of July when about $30-million worth of foreign portfolio investments came in and left right away, leaving a slight but ominous net outflow.
According to the BSP, total inflows amounted to $721.7 million during the seven-month period while outflows amounted to about $408.5 million. In July alone, about $164.2 million went into the country and $80.4 million went out.
However, BSP Governor Rafael Buenaventura said the reaction of foreign direct investments would not be apparent until a few weeks after the July 27 incident when the market has fully digested the events.
"Unfortunately, that incident would have an impact on foreign direct investments," said Buenaventura. "It will take a bit more time before they are convinced again that the incident need not overshadow the improvements and continued stability of our fundamentals."
During the comparable period last year, more foreign portfolio investments came into the country, amounting to $913.1 million. However, more investments also went out, amounting to about $727.6 million, leaving a net inflow of $185.5 million in 2002.
The reaction of the international bond market was more immediate. Fund managers have advised their clients to cash in their profits since most of them have already made double-digit earnings.
JPMorgan announced earlier that it had cut its exposure to the Philippines and increased its exposure to Nigeria in its model emerging debt portfolio.
JPMorgan decided to cut exposure to the Philippines to underweight in response to a 19-hour siege on Sunday when about 300 Philippine soldiers took over the Glorietta Shopping Complex.
JPM said it did not think the short-lived military mutiny would damage the government’s budget directly, but it would draw external investor attention to Philippine politics, probably raising volatility.
"Going forward, political rumors will dominate investor perceptions of the Philippines, neutralizing news on any gains on tax collections, spending restraint, and lower than expected bond issuance. Historically, there is little upside to markets when the focus turns to Philippine politics," said JPMorgan.
According to JP Morgan Asia vice president for research David G. Fernandez, the timing of the failed siege was not as damaging as it could have been, especially since the government has already raised the bulk of its financing requirements for 2003.
At present, the Arroyo administration only needs to raise about $400 million from the international credit market to finance the remainder of its budget deficit for the year.
According to Fernandez, the government has not changed its directive for 2004 and the market still expects the administration to source $1 to $1.5 billion from the foreign market.