Foreign fund exit slows in August but positive reverse seen unlikely

MANILA, Philippines — Foreign funds still mostly pulled out of local financial markets in August, but losses were narrower than previous month even after the government placed key economic centers in brief lockdowns anew.

Foreign portfolio investments posted a net outflow of $453.17 million last month, narrower than the $235.38 million in previous month and $391.74 million same period last year, the Bangko Sentral ng Pilipinas (BSP) said in a statement late Thursday evening.

However, a net outflow still indicates that more investments still left than entered the country, a signal investor appetite remained struggling in the face of the health crisis. These placements are also known as “hot money” for the ease they enter or exit markets at the slightest sign of increased or decreased risk for their money.

“(This is) brought about by uncertainties due, among others, to the impact of the COVID-19 pandemic to the global economy and financial system…,” the central bank said.

Luis Limlingan, managing director at Regina Capital brokerage, said a swing back to positive territory in the closing months of 2020 remain uncertain. “It's rather difficult to say at this point since this year has been like any other in that sentiment has been influenced by a pandemic and not financial in nature,” he said in a Viber message.

A return to net inflow is needed for BSP to beat its yearend forecast of $2.4-billion net outflows. From January to August, hot money exit already breached that level at $3.88 billion, wider than $1.1 billion same period a year ago. 

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said bringing back confidence to both consumers and business will be key. “It will take the optimism on the reopening of the economy to turn it...Right now, it’s as if we’re still in a lockdown without sufficient public transport? How can you restart your economy more efficiently,” he said in a phone interview.

Indeed, investors have turned against the government’s early penchant for lockdowns. In June, when President Rodrigo Duterte eased quarantine controls in Metro Manila and neighboring areas like Calabarzon, gross hot money inflows rose to $1.02 billion. 

But by August, when Duterte placed the same areas back to modified enhanced community quarantine from Aug. 4-18, inflows sank to just $666.51 million. That said, gross outflows also dropped from $1.25 billion in June to $793.27 million in August, data showed.

BSP said that apart from the pandemic, foreign investors turned away from Philippines due to the “geopolitical and trade tensions and corporate governance issues involving water concessionaires” where Duterte threatened to unilaterally revoke existing state contracts with Manila Water Co. and Maynilad Water Services Inc.  

A total of 84.3% of investments last month flowed to the stock exchange, mainly to listed holding firms and companies in the property, banking, food and beverage, tobacco and telecommunication sectors. The balance of 15.7% were invested in local government bonds.

By country of origin, investments mainly came from the UK, Singapore, the US, Hong Kong and Luxembourg, which cornered 82.6% of inflows last month, figures showed.

For the first 8 months, both gross inflows and outflows were also down from last year to $7.08 billion and $10.97 billion, respectively.