MANILA, Philippines — More foreign portfolio investments or speculative funds exited the Philippines for the second straight month in October due to volatility in the global financial markets amid disruptions in the supply chain, according to the Bangko Sentral ng Pilipinas (BSP).
Data released by the BSP showed the net outflow of foreign portfolio investments reached a three-month high of $221.11 million in October, a reversal of the net inflow of $439.46 million in the same period last year.
This was the biggest net outflow since the $339.7 million recorded in July and more than nine times the $24 million outflow recorded in September.
Foreign portfolio investments or hot money refer to purely speculative funds that quickly and regularly move within the global financial markets as investors scout for higher short-term yields available.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the volatility in the global and local market is caused by the widely expected tapering of bond purchases or quantitative easing by the US Federal Reserve later this year up to mid-2022 as may be justified by elevated inflation.
This, Ricafort explained, has led to some continued selloff in the bond markets in October as better economic recovery prospects also lead to the normalization of monetary policy in terms of higher bond yields from among record low levels posted especially at the height of the pandemic last year.
He said continued market concerns over China Evergrande debt woes also partly weighed on the global financial market sentiment.
Gross inflows of speculative funds fell by 29.8 percent to $949.58 million in October from $1.35 billion in the same month last year.
The BSP said about 95.6 percent of investments coming mainly from the United Kingdom, US, Hong Kong, Luxembourg and Switzerland were placed in securities listed on the Philippine Stock Exchange (PSE), mainly in food, beverage and tobacco companies, property companies, holding firms and information technology.
Meanwhile, the remaining 4.4 percent went to investments in peso-denominated government securities.
The BSP said gross outflows jumped by 28 percent to $1.17 billion from $913.49 million, with the US receiving 69 percent of the speculative funds that exited the Philippines.
From January to October, the Philippines booked a lower net outflow of $679.64 million compared to last year’s $3.94 billion.
During the 10-month period, gross inflows went up by almost 22 percent to $11 billion from $9.03 billion, while outflows declined by 9.9 percent to $11.68 billion from $12.97 billion.
The BSP has further lowered its net foreign portfolio investments inflow target to $4.3 billion this year and to $5.7 billion next year.
Ricafort said the net foreign portfolio investments data may improve in the coming months amid additional measures to further reopen the economy.
He said the net foreign portfolio investments data could also improve in view of the increased fund-raising activities especially from November to December by the national government including the $1.6 billion proceeds from the onshore retail dollar bond issuance as well as by the private sector.
“Improved economic recovery prospects amid accelerated vaccination to expedite the achievement of population protection and eventually herd immunity would also help attract more foreign portfolio investments into the country in the coming months,” Ricafort said.
According to the economist, improved prospects could be partly offset by any uncertainties related to the May 2022 presidential elections, especially on issues related to policies, reform measures, pandemic response, priorities related to economic recovery, and other important consideration for both local and foreign investors.