Hot money flees Philippines for 6th straight month

MANILA, Philippines — Foreign investors pulled out more speculative funds from the Philippines for the sixth straight month, bringing the total amount withdrawn to $3.89 billion in the first eight months of the year, the Bangko Sentral ng Pilipinas (BSP) said.

Latest data released by the central bank showed the net outflow of foreign portfolio investments from January to August was 3.5 times the $1.1 billion net outflow booked in the same period last year.

Foreign portfolio investments are also referred to as hot money because of their speculative nature.

The BSP said uncertainties caused by the coronavirus disease 2019 or COVID-19 pandemic to the global economy and financial system was the main factor for the capital flight.

It also cited other key events earlier in the year such as geopolitical and trade tensions as well as corporate governance issues involving the water concessionaires.

According to the BSP, transactions involving securities listed in the Philippine Stock Exchange (PSE), peso government securities and other investments all yielded net outflows from January to August.

Gross inflows plunged 39.7 percent to $7.08 billion from $11.74 billion, while gross outflows declined by 14.5 percent to $10.97 billion from $12.84 billion.

Speculative investors continued to skip the Philippines amid the general risk-off sentiment in the markets that has prompted them to fly to safe haven countries. Investors continued to liquidate portfolios and keep money in cash due to heightened worries over adverse economic impact of the global coronavirus pandemic.

The Philippines has been recording a net outflow in speculative funds since March as the entire Luzon was placed under enhanced community quarantine to prevent the further spread of the coronavirus.

As a result, the economy stalled and the country slipped into recession as gross domestic product (GDP) contracted by a record 16.5 percent in the second quarter from 0.7 percent in the first quarter.

For this year, the BSP has lowered its foreign portfolio investments projection to a net inflow of $2.4 billion instead of $8.2 billion and will be revised further in the coming months.

Rizal Commercial Banking Corp. chief economist Miichael Ricafort said the net outflow booked in August was smaller than the $453 million net outflow recorded in July and is expected to improve further in the coming months.

“For the coming months, further re-opening of the economy and sustained pick-up in economic recovery would fundamentally help improve investments valuations and, in turn, net foreign portfolio investments data,” Ricafort said.

Going forward, the economist said any sustained tapering off in new COVID-19 cases, any successful development and deployment of vaccine as well as the passage of Republic Act 11469 or the Bayanihan to Recover as One Act containing a P166.5 billion stimulus package would also help economic recovery prospects gain further traction that help improve investment valuations.