Des Ferriols
Philippine Star

The Bangko Sentral ng Pilipinas (BSP) expects a dramatic drop in portfolio investment or “hot money” flow into the local equities market this year as a result of the US financial meltdown.

The BSP said portfolio investments may drop to only about $700 million this year from $3.5 billion in 2007.

The BSP, however, said it is retaining its revised projected foreign direct investments of $2.6 billion for 2008.

The BSP’s original foreign direct investment projection for 2008 was $4.2 billion but this had to be trimmed down to reflect delayed projects as investors await for more developments in the global economy.

Net foreign portfolio investments, however, are expected to reach only $700 million this year, against the original projected net inflow of $1.1 billion.

Last year, portfolio inflows amounted to a total of $3.5 billion, fueled by investor enthusiasm over the country’s fiscal consolidation and unexpectedly robust economic expansion.

Hot money flows have been severely affected by adverse investor sentiments stemming from the meltdown in the US financial market that led to the collapse of what used to be its sturdiest financial institutions.

Heavy portfolio outflows, according to the BSP, would be stemmed only by the resilience of investments in dollar-denominated Philippine bonds, even as the stock market suffered from heavy withdrawals.

On the other hand, foreign direct investments, according to the BSP, would suffer from the impact of a slower demand in developed markets which had discouraged direct investments into industries that are expected to attract investors this year, such as mining.

The BSP said inflows from foreign direct and portfolio investments would slow down considerably compared with original projections because of the shifting investor sentiments and market prospects.

The BSP said financing conditions this year would be dramatically different, reflecting the difficulties in the US credit sector. “There will definitely be tougher financing conditions and that will affect investments,” officials said.

According to BSP’s economic statistics director Illuminada Sicat, foreign direct investments reached $2.7 billion last year but the BSP is expecting a surge of investments in the mining sector this year.

However, Sicat said a number of mining projects have been delayed as investors adopted a wait-and-see attitude until demand for minerals start picking up again in the developed markets.

Sicat said not all reasons for the delay in mining investments were market-related. She said there were also issues in environmental clearances and various compliance issues that delayed some projects.

“So some projects were put off,” she said. This indicated, however, that the same investments would still come into the country, possibly next year.