FDI net inflows down 36% in September, but higher in nine months

The country’s net inflows of foreign direct investments (FDI) decreased to $368 million by 36.2 percent from the $577 million recorded in the same month a year ago, the Bangko Sentral ng Pilipinas (BSP) reported Tuesday.

However, BSP data showed FDI net inflows still slightly increased in the first nine months by 3.8 percent to $6.7 billion from the year-ago level.

For September, BSP said the decline in FDI net inflows was mainly driven by a 32.8 percent decrease in investments in debt instruments to $277 million from $413 million posted in the same month a year ago.

Similarly, foreign investments in equity capital excluding reinvestment of earnings fell by 91.2 percent to $7 million from US$83 million.

On the other hand, reinvestment of earnings grew by 3.6 percent to $84 million from $81 million.

Most investments in September came from Japan with a 60 percent share, followed by the United States with 25 percent, and Singapore with eight percent.

Funds channeled to manufacturing sector

The bulk of foreign investors’ funds were channeled to the manufacturing sector which received 58 percent of the total equity investments, followed by real estate with 19 percent and information and communication with 8 percent.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said foreigners, especially in the US, must have hesitated to invest their funds as they were waiting for clearer signals about the trajectories of inflation and the Federal Reserve’s policy rate.

The US Labor Department reported that the inflation in the US in September rose 0.2 percent, which Reuters said was higher than analysts’ forecast.

“Inflation rates in many countries have yet to come down which should give investors extra cash that can be used for various investments,” Ricafort said.

Waiting for the Fed

The economist added investors were waiting for the monetary policy decision of the Federal Reserve which usually signals any short-term inflationary and other economic risks.

On 18 September, the US central bank announced a 50 basis point-cut to its policy rate as it projected inflation to ease toward its target of two percent.

Moving forward, Ricafort said FDI to the Philippines might increase in the fourth quarter as analysts expect the Federal Reserve to further cut its rate next week. A survey by Reuters showed an 87 percent chance of a 25 basis point-reduction.

Ricafort added that Philippine companies might see higher earnings in the remaining months of the year as local inflation continued to settle within the BSP target of two to four percent.

The Philippine Statistics Authority reported inflation fell to 1.9 percent in September from 3.3 percent in August as food and fuel prices decreased.

“Consumption will remain robust due to still manageable inflation and holidays spending in December. BSP Governor Eli Remolona Jr. also said the Monetary Board is considering whether to pause or cut its policy rate due to generally easing inflation,” he said.