$1.3 B hot money flees in past 3 weeks

MANILA, Philippines - Close to $1.3 billion worth of foreign portfolio investments or ‘hot money’ were pulled out from the Philippines in the first three weeks of September amid the negative sentiment of investors.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed $1.27 billion worth of foreign funds were withdrawn from the markets from Sept. 1 to 16, while inflows only amounted to $567.14 million.

The amount pulled out from the markets was 21 percent higher than the $1.05 billion withdrawn in the same period last year.

This resulted in a net outflow of $701.12 million in the first three weeks of September.

Foreign portfolio investments or hot money are referred to as speculative funds controlled by investors who actively seek short-term returns and high interest rate investment opportunities.

Foreign funds continued to move out of the Philippine Stock Exchange (PSE) due to external shocks brought about by the timing of the interest rate hike in the US as well as developments in the country.

The Duterte administration declared a “state of lawless violence” after 15 people were killed in an explosion in Davao City last Sept. 2.

Likewise, President Duterte launched tirades against US President Barack Obama, UN Secretary General Ban Ki-moon, and the European Union for meddling into the government’s all-out war against illegal drugs.

BSP Deputy Governor Diwa Guinigundo said during a forum titled “Rising the Next Tiger: The New Administration’s Economic Priorities” organized by Stratbase – Albert del Rosario Institute the funds pulled out from the equities as well as government securities markets have not left the Philippines and are currently parked in interim peso deposits.

“Yes there were liquidations in the equities market, there were liquidations in the government securities market but most of these liquidations are still in the interim peso deposit,” Guinigundo said.

He explained the peso and government securities holdings liquidated by investors are converted into dollar resulting in the strengthening of the dollar.

Guinigundo said the interim peso deposits stood at P200 billion in the second or third week of September.

“They’re still there. In short they were waiting. There were some remittance abroad but if you look at the amount there were deposits. In fact deposits, at some point, were even greater than the withdrawals,” he said.

The BSP official pointed out the US Federal Reserve would likely raise interest rates in December since November is an election month.

In the first eight months of the year, the Philippines booked a $2 billion net inflow of foreign portfolio investments amid the country’s strong macroeconomic fundamentals. This was a complete reversal of the net outflow of $211.8 million recorded in the same period last year.

The central bank traced the inflows to the P37 billion infusion made by Japan’s largest financial institution the Bank of Tokyo Mitsubishi UFJ Ltd (BTMU) in exchange for a 20 percent stake in Security Bank Corp. as well as the P25.13 billion initial public offering of cement maker Cemex Holdings Philippines Inc.

The BSP also cited large net inflows in shares of two holding companies as well as the renewed interest in peso government securities.

Data showed inflows fell 15.77 percent to $12.6 billion from January to August this year against the $14.96 billion booked in the same period last year while outflows dropped at a bigger rate of 29.9 percent to $10.63 billion from $15.17 billion.