Hot money reverses to net inflow in May as lockdowns ease

MANILA, Philippines — The Philippines reversed three straight months of foreign portfolio investment outflows in May to post its biggest net inflow this year, all thanks to easing pandemic restrictions.

What’s new

International investors put $417 million more short-term funds in the country than they withdrew last month, the Bangko Sentral ng Pilipinas reported Friday. That marked this year’s second net inflow and was a turnaround from $374 million net outflows in April.

From January to May, foreign portfolio investments posted a net outflow of $441 million, smaller than $3.1 billion net outflow during the same period last year when pandemic restrictions were at their tightest.

Why this matters

Also known as “hot money” because of the ease by which these funds enter and exit markets, foreign portfolio investments are highly sensitive to both local and international developments. If risks emerge, foreign investors tend to immediately pull out their funds from the local economy.

What the BSP says

In a statement, the central bank attributed last month’s net inflow to positive developments at home such as its decision to maintain monetary policy at all-time low to support the economy and S&P Global Rating’s affirmation of the government’s investment grade credit ratings. The government’s decision to place Metro Manila and four nearby areas under less strict quarantine status also prompted investors to bet anew on the country, the BSP added.

What an analyst says

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., agreed with the BSP’s assessment, adding that hot money inflows may pick-up in the next months as more companies tap the local financial market to raise funds.

“More  fund-raising activities such as IPOs/REITs/other share sales, as well as bond sales/borrowings by both the government and the private sector could still entail more net foreign portfolio investments,” Ricafort said in an e-mailed commentary.

Other figures

• Gross inflows last month went up 124.0% month-on-month to $1.5 billion, 67.9% of which was mainly invested in the local stock market while the remaining 32.1% went to government securities like Treasury bonds and bills. The United Kingdom, Singapore, United States, Luxembourg, and Norway were the top five (5) investor countries for the month, with combined share to total at 88.0%.
• On the other hand, a total of $1.04 billion flighty foreign funds left the country in May, up 1.6% from the preceding month. Data showed 69.5% of the gross outflows went to the US, a safe haven for investors.