By Arra B. Francia
BPI SECURITIES, Inc. sees $ 600 million in foreign funds coming out of the local stock market this year, as more and more investors are investing their funds in China, following their heaviest weight on the MSCI index.
The president of BPI Securities and Chief Executive Officer Hermenegildo Z. Narvaes explained that about $ 1.9 trillion. Funds are tracking the MSCI Emerging Market Index, influencing their decisions on where to park their funds.
"The MSCI index for emerging markets, which many fund managers monitor, has decided to increase China's weight, and as a result, smaller emerging markets such as the Philippines will be affected," said Mr Narvaez. BusinessWorld in a recent interview.
– So expect a lot of outflows. Our expectation is that we are looking at about $ 400-600 million out of the outflows on the back of that, "he added.
During the half-year review of the index in May 2019, MSCI decided to increase the weight of Chinese shares in three steps until November. China's position in the MSCI Emerging Market index may rise to 42% of its market capitalization, including the stock registered in Hong Kong.
"We account for about 1.1% of this emerging market index … Although we are only 1% of the emerging market index, it is still a significant figure – $ 400-600 million amounted to more than a month of trading with the index, – said Mr Narvaes.
BPI Securities CEO added that regional partners such as Indonesia and Thailand would also be affected by rebalancing.
Looking for comment, president and chief executive officer of the Philippine stock market, Ramon S. Monzon, noted that the MSCI review is a regular event expected from the market.
"(W) if its results can cause a purchase or sale, this action takes place within a certain period of time. Foreign investors are then influenced by developments that may have an impact on their investment strategy. Foreigners are still net buyers on our market today, "Mr Monzon said in an e-mail last week.
To date, PSEi has a net foreign earnings of 28.24 billion euros, according to the online platform for the stock exchange Investagrams.
He added that the Philippine market is still appealing to foreign investors, as the prospects for the country's economy are optimistic.
"The feelings of the Philippines continue to be positive, especially with recent developments, including improved S & P credit ratings, Fitch Ratings' approved credit rating, and improved country competitiveness on the basis of the report by the International Institute for Management Development."
Taking into account the rebalancing of MSCI, BPI Securities plans PSEi to finish at 8,650 by the end of 2019. This is 2.8% less than its previous estimate of 8,900 revealed last year.
The market may be further affected by the negative sentiment in terms of the US-China trade war as two of the world's largest economies continue to impose tariff increases without significant progress on the long-awaited trade deal.
Mr. Narvaes said that while the Philippines will not be heavily hit by the war, the general sentiment will affect the appetite of investors.
"The problem is that the securities market is not just a function of fundamentals, moods, and how asset prices and risk appetite of investors are behaving. Because of this trade war there is a general aversion to risk, "Mr. Narvaes explained.
Then there will be a tendency for investors to start investing in what is perceived as safer assets.
"In the near future probably more money will be taken away. Some movements in safer assets such as the yen, the dollar, short-term US government securities, and even gold. "
Asked which sectors look more attractive to investors, Mr. Narvaes listed down the bank notes he notes that will benefit from the recent cut in reserve requirements. He added more properties and some consumer stocks.