Why would a foreign investor withdraw his investment in emerging markets? This is one of the common questions asked by economic observers. First, it should be assumed that the goal of an investor is to maximize the value of his asset. That is, most of the time investors would look for investment with highest return.
In the case when U.S. Federal Reserve announced the tapering (gradual reduction) of $85 billion monthly stimulus, this sent a signal that foreign (hot money) investment in emerging markets would slowdown, thus, would weaken the emerging markets' currency in the future. As a result, the foreign investors would pulled their money before the currency depreciates.
The $85 billion monthly stimulus aims to increase money supply in U.S. that would lower bank interest rates and as a a result, would fuel business activities to create jobs. However, there are arguments whether if the stimulus resulted to business expansion in U.S. or it just fueled asset bubble in the emerging markets. On the positive side, due to favorable dollar reserve, the flight of investment last June had little impact in the Philippines economy.
The U.S. Shutdown:
Recently, U.S. government shutdown due to concerns in "debt limit ceiling"; this pertains to limitation of a government to borrow in a particular level. The shutdown forced approximately 800,000 federal workers to go on leave.
It is seen that the shutdown of U.S. government will have little effect in Philippines economy in short term, yet, if prolonged is seen to affect the exports. Relatively, U.S. is one of biggest trade partner of the Philippines.
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