Foreign fund exodus persists but tapers off in June

MANILA, Philippines — Foreign funds continued to withdraw from local financial markets in June, albeit at smaller amounts, as investors stayed on the sidelines during the crucial month of economic reopening.

Foreign portfolio investments posted a net outflow of $235.4 million last month, much bigger than the $36.03 million net withdrawals same period a year ago, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday.

A net outflow means more flighty foreign funds left the country against those that entered. Portfolio investments, also called as “hot money” for the ease they enter and exit markets, are mainly channeled to the bond and equity markets.

Broken down, inflows went back to the billion-dollar level at $1.02 billion, following tempered placements during the lockdown months of March to June when the entire Luzon, where 70% of economic output is located, was shut down to get the pandemic under control.

While inflows rebounded, they were still outnumbered by outflows that reached $1.25 billion, BSP data showed.

The latest data brought the year-to-date tally to a net outflow of $3.3 billion, way bigger than the $721 million net withdrawals recorded same period a year ago. BSP is still optimistic of a recovery in the remainder months, projecting a $2.4 billion net inflow by year-end. 

Hot money are easily affected by political and economic developments so when things go wrong, investors easily pull out. From January to June, the central bank the fund pull-out was “brought about by uncertainties due, among others, to the impact of the COVID-19 pandemic to the global economy and financial system.”

Other “key” events such as geopolitical tensions between the US and Iran, unresolved trade friction between Washington and Beijing as well as President Rodrigo Duterte’s threats in the year to unilaterally cancel Metro Manila water contracts, all tempered investor confidence in the Philippines, prompting fund withdrawals.

On Thursday’s data release, the central bank said the bulk of hot money in June, equivalent to 92.3% of total inflows, were invested in the Philippine Stock Exchange. Broken down, listed holding firms as well as companies engaged in property, banking, telecommunication and food cornering a big chunk of the inflows. 

The balance of 7.7% of inflows were exchanged for pesos to buy government securities like Treasury bonds and bills, which are safer outlets than stocks, but offer lower interest to investors.

By country source, inflows in June mainly came from the United Kingdom, Singapore, US, Norway and the Bahamas. Total investments from these countries accounted for 71.7% of hot money inflows last month.

On flip side, the US, the world’s safe haven, was the biggest recipient of hot money outflows, cornering 61.4% of total withdrawals last month.