Hot money outflow triples in 10 months

MANILA, Philippines — The net outflow of speculative funds or hot money more than tripled to $3.94 billion from January to October compared to last year’s $1.22 billion despite the strong inflows in October, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP traced the higher net outflow of foreign portfolio investments during the 10-month period to uncertainties brought about by the pandemic to the global economy and financial system.

The BSP also cited international and domestic developments such as geopolitical tensions, certain corporate governance issues and extended quarantine measures in select regions in the country.

According to the BSP, year-to-date transactions for all investments in listed securities at the Philippine Stock Exchange (PSE), peso government securities and others resulted in net outflows.

Latest data from the BSP showed gross inflows plunged by nearly 37 percent to $9.03 billion in the first 10 months from $14.29 billion a year ago, while gross outflows declined by 16.4 percent to $12.97 billion from $15.52 billion.

For October alone, the country booked a net inflow of $439.46 million in foreign portfolio investments or 4.2 times the $104.53 million net inflow in the same month last year.

This ended seven consecutive months of net outflows that started in March.

Gross inflows of hot money went up by eight percent to $1.35 billion in October from $1.25 billion in the same month last year, while gross outflows fell by 20 percent to $913.49 million from $1.15 billion.

The BSP said about 78.8 percent of investments registered were in PSE-listed securities particularly in information technology firms, banks, holding firms, property companies as well as food, beverage and tobacco firms.

It added the remaining 21.2 percent went to investments in peso government securities.

Major sources that accounted for 81 percent of speculative funds last month include the United Kingdom, US, Singapore, Luxembourg and Hong Kong.

The BSP now expects a net foreign portfolio investments inflow of $2.4 billion this year. Hot money booked a net outflow of $1.9 billion in 2019, reversing the $1.2 billion net inflow booked in 2018.

For 2021, the central bank sees hot money booking a net inflow of $3.4 billion.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said any sustained reduction or tapering off in new COVID-19 casesand any successful development and deployment of vaccines would help economic recovery prospects gain further traction which help improve investment valuations, as well as also help improve the net foreign portfolio investments data.

Ricafort said an offsetting factor would be the fact that any further pick up in economic activities could be relatively slower amid social-distancing and other stringent health protocols in an effort to prevent COVID-19 from spreading further, thereby causing many businesses to operate way below the usual capacity.

“Still near record low interest rates and the continued relatively large amounts of excess liquidity in the financial system, both as a result of aggressive monetary easing and other measures by central banks locally and in many countries worldwide, could prompt the search for higher returns in emerging markets such as the Philippines,” Ricafort said.