Pandemic prompts foreign funds to head for the exit in 2020

MANILA, Philippines — Short-term foreign funds that exited the Philippines outstripped those that entered for the second straight year in 2020, reflecting risk aversion among investors trying to protect their portfolios from the coronavirus rout. 

Foreign portfolio investments registered a net outflow of $4.2 billion last year after outflows outpaced inflows, the Bangko Sentral ng Pilipinas (BSP) reported Thursday evening. That was bigger than $1.9 billion net outflow posted in 2019.

Publicly available BSP data also showed that last year's net outflow was a record-high according to comparable figures from 2012. A net outflow indicates more foreign funds left than entered. 

Also known as “hot money,” portfolio investments enter and leave markets with ease because they are highly sensitive to both local and international developments. If risks emerge, foreign investors tend to immediately pull out their funds from the local market.

It was that flighty nature that put hot money in the red in 2020, with the BSP failing to hit even its downwardly revised projection of $2.8-billion net inflow last year. In a statement, the central bank mainly pinned the blame on the lingering pandemic that compounded other developments that trigger investor aversion.

“Developments for the year included the ongoing impact of the COVID-19 pandemic to the global economy and financial system, along with international and domestic developments throughout the year such as geopolitical tensions, certain corporate governance issues and extended community quarantine measures in various regions in the country,” the BSP said.

Only 3 of the past 12 months saw a net inflow of hot money investments, that is despite lockdowns slowly getting relaxed from June to permit business. In December alone, 78.6% of net inflows over the preceding 2 months were offset by net outflows worth $523.86 million, the highest since May. 

For all of 2020, BSP data showed gross inflows amounted to $11.68 billion, down 29.7% year-on-year, while gross outflows reached $15.92 billion. 

Breaking down the inflows, 80.5% of short-term bets were placed in publicly-listed companies with interests in property, banking, food, beverage, tobacco and information technology as well as holding firms. The remaining 19.5% were invested in peso-denominated government securities like Treasury bonds and bills issued every week.

By location, the United Kingdom, Singapore, United States, Luxembourg and Hong Kong were the top five investor countries in 2020, which were the source of 78.2% of inflows last year. 

On the flip side, the US, the world’s safe haven as largest economy, remained the main destination for outflows, cornering 63.8% of funds headed for the exit.

Similar with anything from resuscitating the economy to resuming business engines, Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said a successful containment of coronavirus, including its mutant strains, and efficient vaccine rollout would be key to reversing the hot money to positive territory this year. The central bank is projecting portfolio placement to register a $3.5-billion net inflow in 2021.

“An offsetting factor would be the fact that any further pick up in business activities could be gradual amid the new coronavirus variants that are more contagious and entail risks of lockdowns and travel restrictions locally and globally,” Ricafort said in a commentary.