A matter of confidence

We have been talking about attracting foreign direct investments for the longest time. It is used to justify BBM’s globe-trotting. It is cited as a good reason to revise the Constitution. But folks are neglecting the most important part: investments require confidence in the country.

It has been difficult to attract FDIs because investors lack confidence in our economy, in our government and in our future. Nowhere is this lack of investor confidence expressed daily as in our stock market. Some will say that we don’t want “hot money” or volatile portfolio investors anyway. But potential FDIs are probably taking the cue from “hot money” investors.

“Hot money” investors, by the nature of their business, are better attuned to the opportunities and dangers of having some money invested here. If these investors are not enthusiastic about our equities market or lack confidence, potential FDIs may think they must have good reasons for staying out. So, FDIs go for better options in the region.

Stock markets around the world are booming. Those in America, Europe and Japan have surged to record highs. Yet, trading in our stock market has been lackluster for quite a long time now. The locals are just trading among themselves, perhaps to pass time because there is nothing to do during trading hours. For the local bourse to get exciting again, it needs foreign portfolio investors to join the fun. But they have been leaving and not coming back.

They lost confidence in us when Duterte started cursing everyone and had his deadly drug war. There simply are things in the manner of behavior that are expected from the president of a country. Having an unhinged president is not reassuring to a potential investor.

Then Duterte started upsetting established contracts like the one for Metro Manila’s water distribution which caused confidence in doing business here to slump. When Duterte hobnobs with sleazy characters, even appointing one of these foreigners as a presidential adviser, the wrong signal is received by legitimate foreign investors.

Our big problem is thinking that potential investors simply cannot resist the prospect of investing here. That’s simply not the case. There are good competitors in the region. If an investor is spooked by Duterte’s dirty talk, it is easy to decide to build a new factory in Vietnam or Indonesia instead. If a potential investor was turned off by a demand from a congressman, governor or barangay captain for some under-the-table benefits, he can take the next flight out and go to Vietnam, as many have done.

Data from the Bangko Sentral ng Pilipinas (BSP) released last January showed foreign portfolio investments registered with the central bank through authorized agent banks posted a net outflow balance of $247.3 million (P14 billion) last year, from a net inflow of $886.7 million in 2022. Not very big numbers by themselves but still a negative outflow and shows how unimportant our stock market is to serious investors in the region.

And the sad trend continues. The BSP reported last week that transactions on foreign investments registered with the BSP, through the banking system, recorded net outflows of $76 million last January. There were $1.3 billion gross outflows and gross inflows of $1.2 billion for the month.

During the month, 62.7 percent of registered investments were in PSE-listed securities or “hot money” ($775 million) [most of which were investments made in: (a) banks; (b) holding firms; (c) property; (d) transportation services; and (e) food, beverage and tobacco], while about 37.3 percent were in peso government securities ($460 million) and the remaining [less than one percent] were in other instruments.

BBM just returned from Australia reportedly to sell our country as an investment destination. DTI claims that the BBM foreign junkets brought back $72.18 billion or nearly P4 trillion in foreign investments. The amount covers 148 projects, mostly in the sectors of renewable energy, data centers and telecommunications, manufacturing, information technology and business process management.

Of course, not a cent of those claimed investments has actually managed to put up even a sari-sari store so far. Most of those are merely covered by memos of understanding or intent to invest. Investors will come here, look around and just as quickly turn around after seeing our reality on the ground from red tape to outright demand for some baksheesh.

Perhaps, BBM should promote portfolio investments before eyeing FDIs. Once portfolio investors are convinced our country has a bright economic future, their confidence may rub off on potential FDIs. But how to win their confidence is going to be a challenge given what we have by way of politics and an inability to institute reforms in the governance of our country.

Some may say that the stock market is not a good mirror of the economy. That’s correct to a point. But it mirrors investor confidence or lack of it which long term investors look at. The stock market is forward looking. The price you are willing to pay for a stock today depends on how well you expect the company to do in the future. That is also largely dependent on whether the country is going to be a tiger economy or likely to remain an economic basket case.

The fact that portfolio investors can leave with a few strokes on a keyboard should be an incentive for BBM to always behave in a way that inspires confidence. That’s difficult for a Filipino politician to do.

Boo Chanco’s email address is [email protected]. Follow him on X or Twitter @boochanco