Hot money reverses into $310-M outflow in 2014

MANILA, Philippines - Foreign portfolio investments ended in a net outflow in 2014, Bangko Sentral ng Pilipinas data showed, as the US central bank’s reduction in its massive asset purchases caused heightened volatility in global financial markets.

The Philippines recorded a net hot money outflow of $310.21 million last year, a reversal of the $4.22 billion net inflow in 2013.

 “The investment flows reflected investor reaction to the tapering of the quantitative easing program of the United States which started in January 2014 and ended in October 2014,” the BSP explained.

Emerging markets and economies like the Philippines became safe havens for investors following a downturn in the US economy and the euro area.

However, the recovery in the US prompted the US Federal Reserve to slowly decrease its monthly purchases of Treasuries and mortgage bonds, which was earlier meant to pump money into the economy. This resulted in capital flowing out of the emerging markets and back to the US as investors rebalanced their portfolios.

Gross inflows of hot money fell 23 percent to $21.8 billion last year from $28.4 billion in 2013, while gross outflows tumbled nine percent to $22.12 billion from $24.18 billion.

Despite this, the BSP stressed that portfolio investments in 2014 remained robust and were in fact the second highest recorded since 1999.

“[This was due to] the country’s sound macroeconomic fundamentals, credit rating upgrades for the Philippines… and improved full-year growth forecast by Moody’s Analytics,” the central bank said.

“There was also a strong and positive response to several market offerings during the year,” the BSP added.

Hot money inflows last year primarily went to securities listed in the local stock exchange and into peso-denominated government securities, the BSP said.

The top investor countries in 2014 were the United Kingdom, the United States, Singapore, Malaysia, and Luxembourg. The main destination of outflows, meanwhile, was the United States.