Vaccine optimism fuels hot money net inflows in January

MANILA, Philippines — Short-term foreign funds that entered the Philippines exceeded those that exited in January, as the start of mass vaccinations around the world soothed lingering risk aversion among investors.

Foreign portfolio investments registered a net inflow of $98 million in the first month of the year, a reversal from $524 million net outflows recorded in December, the Bangko Sentral ng Pilipinas reported Friday. A net inflow indicates more foreign funds entered than left. 

Also known as “hot money,” portfolio investments enter and leave markets with ease and 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.

"Markets are excited about the COVID-19 vaccine rollouts that reduced new COVID-19 cases globally," Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said in an emailed commentary.

Broken down, gross inflows in January amounted to $952 million, down 12.2% month-on-month. Year-on-year, gross inflows crashed by a bigger 23%.

Data showed 62.1% of these 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 37.9% was invested in government securities like Treasury bonds and bills.

The United Kingdom, Singapore, the United States, Luxembourg and Hong Kong were the top five investor countries for the month, cornering 83.4% of total.

Meanwhile, gross outflows eased 46.9% on a month-on-month basis to $854 million, with the US receiving 71.7% of funds that headed for the exit. Compared to the same period last year, gross outflows sagged 50.4%.

For Ricafort, the arrival of vaccines in the Philippines, seen on Sunday, and further easing of movement restrictions would stoke hot money inflows in coming months. "Arrival of COVID-19 vaccine shots and eventual rollouts especially in the coming months of 2021 could help reduce new COVID-19 cases and help justify additional measures to further re-opening of the economy," he said.