Profit-taking, Fed rate hike expectations stoke ‘hot money’ flight in February

MANILA, Philippines — Short-term foreign funds exited the Philippines in February, after investors pocketed gains and flee riskier markets on expectations of a US rate hike.

According to a report released Thursday by the Bangko Sentral ng Pilipinas, foreign portfolio investments, also known as “hot money” for their volatility, posted a $545.14 million net outflow last month, a reversal from $162 million net inflows in January 2018.

Year-on-year, the latest result was higher than $409 million net outbound investment flow recorded in February 2017.

“[This] may be attributed to profit taking as well as investor reaction to news of possible rate increases by the US Federal Reserve due to an expected surge in inflation amidst implementation of the US government’s tax cuts,” the central bank said.

The so-called hot money enters and exits the country with ease, unlike firmer commitments like foreign direct investment.

Registered foreign portfolio investments last month amounted to $1.0 billion, 36.6 percent lower than $1.6 billion chalked up a month ago.

According to the BSP, the United States continued to be the main destination of foreign fund outflows, receiving 73.8 percent of total remittances.

Meanwhile, the United Kingdom, the US, Malaysia, Hong Kong, Luxembourg, and Singapore were the top investors for the month, making up 85.1 percent of the total.

Since hitting an all-time high of 9,058.62 on January 29, the bellwether Philippine Stock Exchange index, which closed at 8,190.01 on Thursday, has sagged by 9.59 percent.

“By definition a [market] correction is a 10 percent drop, (which we are approaching) and bear marker is 20 percent,” Luis Limlingan of Regina Capital said in a market commentary.