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NEWS UPDATES Asean Affairs     10 October  2011                       

Risk aversion stressed

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Global risk aversion is expected to reign in the short term as European leaders squabble over measures to address a debt crisis at a time when the US economy is slowing, the Metropolitan Bank and Trust Co. in the Philippines said.

In a commentary, Metrobank said if leaders in advanced economies do not provide concrete contingency plans for Europe’s debt crisis and US’ decelerating growth, such issues will continue to haunt markets in the near term.

Increased portfolio flows to safe-havens, such as government securities, can be expected in the following weeks as players grapple for further direction.

“Compared to the situation in the previous month, it now seems like the heightened global concerns are making themselves evident in our domestic indicators. The peso reached its eight-month low; volatility in the equities market underscores these worries as there is no clear direction reflected in the movement of equities for now,” Reynaldo said.

As the growing macro and sovereign debt concerns weigh on global investors, foreign portfolio investments to the Philippines in the first three weeks of September were subdued.

Data from the Philippines central bank, the Bangko Sentral ng Pilipinas, showed that hot money yielded a net inflow of $38.42 million, down 71.5 percent from $134.83 million in the same period last year.

The three-week flows ending September 23 brought the cumulative foreign portfolio investments to grow by 147 percent to $3.35 billion compared with $1.355 billion in the same period last year.

Analysts noted that these flows came from investments in fixed income peso government securities, coupled with quarter-end window dressing, supportive rhetoric from international leaders and oversold technicals.

The BSP maintained that the reversal of capital flows would be temporary and that hot money will flow back to emerging economies “when the dust cleared.”

Registration of foreign investments with the BSP is voluntary. It entitles the non-resident investor or their representative to buy foreign exchange from authorized agent banks or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of related earnings.

“Moving forward, market risks remain at elevated levels and the ‘hope’ rally may peter out earlier than expected. Given the emotionally driven investment backdrop, players would be ‘sellers on rallies’ rather than ‘buyers on dips.’ Keep your heads down and brace for more volatility. Active management is the key in preserving wealth,” Metrobank said.

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