FDI net inf lows slip to 13-month low in June

NET INFLOWS of foreign direct investment (FDI) fell to their lowest level in 13 months in June, as investor sentiment was dampened by rising inflation and higher interest rates.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Monday showed FDI net inflows declined by 51.5% to $471 million in June from $971 million a year earlier.

This was the lowest monthly FDI inflow recorded since the $455 million seen in May 2021.

Month on month, FDI net inflows dropped by 36.5% from $742 million in May.

“In June 2022, FDI net inflows declined following the drop in non-residents’ net investments in debt instruments of their local affiliates due to higher repayments during the month. This muted the increase in their net investments in equity capital and reinvestment of earnings,” the BSP said in a statement.

By component, non-residents’ net investments in debt instruments of local affiliates plunged by 71.9% to $215 million in June, from $764 million a year ago.

Investments in equity and investment fund shares rose by 23.4% in June to $256 million.

FDIs in equity capital (other than reinvestment of earnings) surged by 41.8% to $131 million from $93 million in the same month last year. Equity capital placements increased by 20.8% to $143 million, while withdrawals plunged by 54.8% to $12 million.

The equity placements were mainly from Japan, the United States, Singapore, and Switzerland. Investments were placed mostly in manufacturing, real estate, and information and communication industries.

Reinvestment of earnings grew by 8.6% to $124 million year on year in June.

In an e-mail note, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said global and local markets saw increased volatility in June as the US Federal Reserve hiked rates by 75 basis points.

“(FDI was) also partly weighed by higher inflation and interest rates that are drags to new investments/FDIs, and some wait-and-see stance while waiting for the new administration,” he said.

At its June 23 meeting, the BSP raised its benchmark interest rate by 25 bps, bringing it to 2.5%.

Ferdinand R. Marcos, Jr. won the presidency by a landslide in the May elections, and assumed office on June 30.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa, the positive FDI inflow in June is a “welcome development.”

“The inflow partially offsets the negative current account balance posted by the country for the month,” Mr. Mapa said in an e-mail.

The country’s balance of payments (BoP) position remained in a deficit for a third straight month in June. The BoP deficit widened to $1.57 billion, from the $312-million gap in the same month last year.

For the first semester, total FDI net inflows rose by 3.1% to $4.641 billion from $4.503 billion during the same period in 2021.

“Said cumulative growth was due to the expansion in nonresidents’ net investments in debt instruments, which more than offset the decrease in their net placements of equity capital (other than reinvestment of earnings),” the BSP said.

In the January to June period, foreign investments in debt instruments grew by 12.3% year on year to $3.343 billion.

“We note that debt instruments remain the bulk of FDI, suggesting that although investors are optimistic over growth prospects, they have yet to bring in so-called fresh FDI (equity) into the country while reinvestment of earnings were modest,” Mr. Mapa said.

Investments in equity and investment fund shares declined by 15% to $1.298 billion in the first semester.

Net foreign investments in equity capital dropped by 24.4% to $739 million. Equity capital placements dropped by 28.6% to $823 million, while withdrawals slid by 51.9% to $84 million. Most of these placements were from Japan, the United States, Malaysia, and Singapore.

Reinvestment of earnings inched up by 1.9% to $559 million in the first half of the year.

“Nonetheless, the year-to-date levels of FDI remain higher than the same time last year and should be on pace to record a new high by the end of the year,” Mr. Mapa said.

“What may be crucial in attracting more FDI to our shores will be the performance of the new administration in the first 100 days as this sets the tone for the next 6 years,” he added.

The central bank projects FDI net inflows will reach $11 billion this year. —