The International Institute of Finance (IIF) sees possible moderate investment growth in Asia’s emerging markets like the Philippines due to persisting sluggish Chinese economy.
IIF economist Jonathan Fortun on Friday shared China posted outflows in equity investments worth $5.8 billion in November, while emerging Asian countries excluding China recorded a slightly lower $5.3 billion.
In terms of the debt market, emerging Asia received $37.3 billion. In contrast, China registered an outflow of $7.5 billion.
Headwinds
“While emerging economies’ debt markets are expected to benefit from the search for yield and the attractiveness of high-carry assets, their equity flows will likely face headwinds unless stability returns to key markets, particularly China,” Fortun said.
These figures came after Donald Trump, a known trade protectionist and anti-China, was declared the incoming US president. He will be inaugurated on 20 January.
Trump threatens to impose a 60 percent tariff on China’s imports, which S&P analyst Nathan Hunt added might force the Asian manufacturing powerhouse to redirect goods to Asian neighbors.
However, Hunt cautioned that non-Chinese businesses might struggle to boost sales due to price-competitiveness of Chinese goods.
He added that a possible exchange of a 25 percent tariff between the US and China could further slow the latter’s economic growth, translating into lower demand for imports from neighboring countries.
Revised outlooks
“For those reasons, S&P Global Ratings has revised outlooks upward for Vietnam and Malaysia. Indonesia, Thailand and the Philippines have unchanged forecasts,” Hunt said.
Fortun said US inflation rates might rise as American firms find cheaper or equally affordable raw materials and labor costs as China’s, which could overshadow emerging Asia markets’ relatively stable domestic inflation and turn off investors.
“Market expectations suggest that the Federal Reserve may be compelled to moderate its easing cycle in response to potential inflationary pressures stemming from the projected fiscal and trade policies of the incoming Trump administration,” he said,
“This recalibration of monetary policy could have implications for investment flows to emerging markets as a less accommodative Federal Reserve stance may diminish the relative attractiveness of emerging markets’ assets,” added Fortun.
Net FDI inflows decline
The Bangko Sentral ng Pilipinas reported that net inflows of foreign direct investments to the Philippines in September have already declined to $368 million from $577 million posted in the same month a year ago.
The central bank attributed the decrease to the 32.8 percent drop in debt investments and the 91.2 percent decline in equity capital investments excluding reinvestment of earnings.
However, reinvestment of earnings grew by 3.6 percent to $84 million from $81 million.