MANILA, Philippines - Emerging Asia will remain this year’s most attractive investment destination for private entities, whose risk aversion has somewhat been minimized by developed nations’ commitment to address the present financial turmoil, a global organization of financial institutions said.
Developing Asia, including the Philippines, is seen to attract $525.9 billion in private capital flows this year, up 11.79 percent from the level seen in June, the Institute for International Finance (IIF) said in a report released this month.
This accounted for almost half of the total $1.067 trillion private flows likely to enter emerging markets this year, itself an improvement from June’s $959 billion.
The balance is seen to be received by Latin America ($301.3 billion), emerging Europe ($176.1 billion) and the African and Middle East regions ($64.2 billion), the IIF said. The first two experienced increases of 11 percent and 22.5 percent from June, respectively, while the latter saw a drop.
BSP Governor Amando Tetangco Jr. has said the central bank is looking at “creative” ways to manage capital inflows entering the country, which could stoke inflation and contribute to peso’s appreciation, among others. A strong peso trims dollar export earnings and remittances.
In a research note, IIF said the outlook for net private capital flows to emerging economies has “brightened somewhat” following announcements from the US and Europe to address economic woes.
“Renewed large-scale asset purchases by the US Federal Reserve and a decline in risk aversion since the middle of the year have contributed to this improved prospect,” the report said.
“The announcement of ECB President (Mario) Draghi to do ‘whatever it takes to preserve the euro’ at the end of July… likely had led to smaller downside risks in the euro area crisis and for the global economy,” it added.
Both the US Federal Reserve and the European Central Bank (ECB) have announced separate bond buying programs meant to flood their economies with cash and lower interest rates to boost demand and growth.
“Generally speaking, global monetary policy settings are an important push factor for capital flows to EMs (emerging markets) because lower interest rates in advanced economies increase the relative returns earned on assets in EM economies,” IIF said.
Tetangco has said the Philippines has been attractive to foreign inflows on the back of its strong macroeconomic fundamentals characterized by strong growth at 6.1 percent in the first semester, and slower inflation of 3.2 percent as of September.
As of Oct. 12, BSP data showed foreign portfolio investments amounted to $2.619 billion, lower than the $3.269 billion recorded as of Oct. 14 last year.