Foreign funds are more focused on the government’s policies and plans on reopening the economy amid the new coronavirus disease 2019 (COVID-19) pandemic rather than on the day-to-day increase in COVID positive cases, according to stockbroker SB Equities Inc.
Citing data from foreign transactions between July 1 and October 28, SB Equities noted a negligible correlation between net foreign purchases in the stock market and newly reported COVID cases.
“This first set of our findings imply that foreign equity investors have a muted reaction to or tend to ignore the news flow from COVID-19 daily new cases. We suspect foreign equity investment behavior appears to be not that keen on new cases data per se but maybe more sensitive to government’s policy announcements and direction in terms of economic reopening and recovery,” it said.
SB Equities also said there was a “negative correlation between the Philippine Stock Exchange index (PSEi) daily returns and one-day lag of COVID-19 newly reported cases,” while the data also suggest the PSEi “negatively reacts to such COVID news, albeit at a modest degree.”
“Drawing from the results, we conjecture the domestic equity market is responsive to the country’s healthcare and economic conditions and developments amid the pandemic, reacting to COVID-19 related news and economic policy announcements,” it said.
SB Equities said in September, foreign funds posted their seventh consecutive month of net outflow while recording a transaction that is nearly four times its size in August.
“FPI (foreign portfolio investments) gross inflows fell 11 percent month-on-month to $594 million in September whereas gross outflows surged 37 percent month on month to $1.1 billion. About 93 percent of the FPIs were on listed equities while the rest on government securities,” it said.
“In January-September, FPI net outflows ballooned to $4.4 billion from $1.3 billion in the same period last year; this was because gross inflows of $7.7 billion were outweighed by gross outflows of $12.1 billion and that the former suffered a bigger decline (-41 percent) than the latter (-16 percent),” it added.
SB Equities said 70 percent of the cumulative net outflows were on equities, which the Bangko Sentral ng Pilipinas (BSP) attributed to uncertainties from the COVID-19 pandemic as well as ongoing community quarantine measures in select regions across the country.
Though the BSP still projects a year-end net inflow positions of $2.4 billion. Next year it expects foreign funds to be a net buyer of $3.5 billion of securities.
