There was notably a huge increase in foreign portfolio investments that entered the Philippines last month. An analysis of the stock market transactions from official figures released to the public by the Bangko Sentral ng Pilipinas (BSP) showed such unusual surge of “hot money” going into the country in November.
Net foreign portfolio investment, otherwise called as “hot money” rose to $832.07 million. This was more than seven times from a year-ago total of $107.71 million, our sister newspaper BusinessWorld reported last Monday.
“Hot money” refers to capital that is frequently transferred between financial institutions in an attempt to maximize interest or capital gain. These investors are the kind of businessmen who ensure they get the highest short-term interest rates available.
Their funds enter and come into the country (inflow) on projected and anticipated short-term gains but get out and leave (outflow) at the slightest speculation of potential loss. Hence, they are called “hot money.”
For the month in review, BusinessWorld further noted, net inflows were also the biggest in eight months this year based from the $1.132-billion recorded last March. November’s level of foreign portfolio investment was a big turnaround from net outflows of $67.83 million in October and $440.3 million in September.
There was nothing earthshaking, so to speak, that could have driven up inflow of such scale except for the state visit of Chinese President Xi Jinping last Nov. 19 to 20. During his very brief stay here in Manila, at least 29 Memorandum of Understanding (MOUs) signed between the Philippines and China, both government to government and private sector business deals that highlighted President Xi’s state visit.
Many of these MOUs did not specify amounts of potential investments or funds coming into the Philippines. However, Foreign Minister Wang Yi disclosed Chinese investments in the Philippines surged more than five folds in the first six months of the year after a 67% expansion last year. Wang came to Manila a month before the state visit of President Xi.
A foreign market analyst, Gregory Wyatt, director for business intelligence at PSA Philippines Consultancy, noted Chinese investors poured money into online gaming, real estate, service providers and stakes in existing Filipino firms, but not into large-scale infrastructure or manufacturing.
Only a small percentage of Filipinos own shares of stock. But still everybody is affected by what happens at the stock market because it is an important component of the economy. This is why the bourse is regarded as the barometer of the country’s economic condition.
It is in the stock market where investors buy and sell shares of publicly traded companies. Since the country’s biggest corporations and partnerships are involved and local and foreign investors whether big or small are into this activity, the buying and selling of shares exert a major influence on how well the economy performs.
A booming stock market is expected to help drive jobs growth in the succeeding months. Primarily, the bourse provides the opportunity for publicly traded companies to raise additional capital for business expansion. If their business expands, more jobs will be created. Thus, it can help make a dent on the unemployment problem of the country.
Several months back, observers noted that the country’s largest firms took advantage of the surging market to sell new shares either through rights offerings or private placements. Even if the country suffered its highest inflation rate in months, there’s nothing like a healthy and growing stock market to restore eroding investor confidence in the economy.
This is the reason why government regulators are strict in monitoring the activities at the bourse. For instance, in early part of the year, Finance Secretary Carlos Dominguez complained that the Philippine Stock Exchange (PSE)’s protracted compliance to the 20% ownership limit is slowing down the development of capital markets.
Dominguez noted the PSE’s slow action is thwarting the goal of the Duterte administration for a more inclusive financial system. The PSE, headed by President Ramon Monzon, meanwhile appealed to exclude the shares of dormant brokers whose trading rights have already been revoked, in the reckoning of ownership limit. Monzon himself displayed somewhat weak leadership in the case of the PSE’s failed bid to buy the Philippine Dealing System (PDS) Inc., with Landbank as the other bidder.
It is important that the PSE, along with other finance and business institutions, both government and private, cooperate to develop a strong capital market for the nation.
But probably in the view of Secretary Dominguez, the PSE under Monzon has been remiss in doing its share in the government’s thrust toward capital market formation. Despite the stunning victory of our very own Miss Philippines’ Catriona Gray at the 2018 Miss Universe pageant held last Monday in Thailand, share prices at the bourses closed nearly unchanged due to what stock market analysts cited as lack of positive catalysts.
What kind of catalysts do our country’s stock market need to perk up trading?
The bellwether PSE index shed 3.97 points or 0.05 percent to 5,520.40. The broader “All Shares” gained 3.60 points or 0.08% to 4,510.10. Jervin de Celis, equity trader at Timson Securities Inc., was quoted as saying there was no positive news to drive the index higher.
“We lack fresh catalysts in the local scene,” he said in a text message, noting that market players are waiting for the US Federal policy meeting for guidance. The Federal Open Market Committee is reportedly scheduled to meet yesterday and today to decide whether or not a change in US monetary policy is warranted.
The fourth Miss Universe title for the Philippines apparently was not enough catalyst to perk up the nation’s bourses. Unstirred by Catriona’s big win, perhaps it’s time then to revisit and check what’s happening at the Philippine bourses.