'Hot money' enters Philippines in April

MANILA, Philippines — Short-term foreign funds entered the Philippines in droves in April, a month before the Bangko Sentral ng Pilipinas kicked off its tightening cycle.

What’s new

Data from the Bangko Sentral ng Pilipinas released Thursday showed foreign portfolio investments recorded net inflows of $1.4 billion last month. Net inflows means more flighty foreign funds stayed in the country than those that exited.

This was a turnaround from a $305 million net outflows in March. Year-to-date, net inflows amounted to $1.3 billion.

Why this matters

Foreign portfolio investments are also known as “hot money” because they come and go markets with ease, unlike firmer commitments like foreign direct investments. These funds are very sensitive to domestic and global developments.

Last month, Asian equity markets were dealing with rising inflation and decisions from central banks to hike interest rates. In the Philippines, inflation hit a three-year high 4.9% in April, which was still beyond the BSP's 2-4% target.

What analysts say

Sought for comment, Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp., said the net inflow was likely due to "new stock market placements by some of the companies like Converge."

"I think investors will have to wait and see on how this new administration can handle our economy before they can come in big," Enriquez added.

Separately, Domini Velasquez, chief economist at China Banking Corp., said: "For the rest of the year, we expect portfolio inflows to be highly volatile but also quite weak given an environment of rising interest rates. Hot money may prefer going to countries where central banks have been more aggressive in its monetary tightening cycle to take advantage of higher yields."

By the figures

• Gross hot money inflows ballooned by 70.7% month-on-month to $2.2 billion in April. Data revealed 91.5% of these investments were parked in publicly-listed companies while the remaining were invested in government securities like Treasury bonds and bills.
• Meanwhile, gross hot money outflows shrank 48% month-on-month to $823 million with the US, considered a safe haven of investors, receiving 61.4% of total outflows.