$714.98 million hot money exits Philippines in 10 months

MANILA, Philippines — More speculative funds continued to leave the Philippines from January to October as elevated inflation and higher-for-longer interest rates dampened investor sentiment, according to the Bangko Sentral ng Pilipinas (BSP).

Data released by the BSP showed the net outflow of foreign investments registered with the central bank through authorized agent banks reached $714.98 million from January to October, reversing the $305 million net inflow recorded in the same period last year.

Foreign portfolio investments, also known as hot money or speculative funds, flow regularly among financial markets because investors want to ensure they get the highest short-term interest rates possible.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the outflow of speculative funds to the relatively higher global interest rates as well as the risk of economic slowdown in the US.

For the 10-month period, gross inflows slipped by three percent to $9.89 billion from $10.2 billion in the same period last year.

On the other hand, gross outflows went up by seven percent to $10.96 billion from a year-ago level of $10.24 billion.

For October alone, the Philippines recorded a net outflow of speculative funds amounting to $328.19 million, reversing the $83.44 million net inflow recorded in the same month last year.

This is the second straight month that the country recorded a net outflow after September’s $698.01 million.

The gross inflow of foreign portfolio investments declined by 12.9 percent to $561.11 million from last year’s $644.55 million.

According to the BSP, about 60.5 percent of the total inflow or $577 million went to securities listed on the Philippine Stock Exchange (PSE) particularly banks, holding firms, property, holding firms, casinos and gaming as well as food, beverage and tobacco.

The balance of 39.5 percent or $377 million went to peso government securities.

The BSP said 88 percent of the total came from the UK, the US, Luxembourg, Singapore and Hong Kong.

Likewise, the gross outflow of speculative funds jumped by 34.4 percent to $1.28 billion in October from $954.38 million in the same month last year.

The US, the BSP said, was still the top destination of outflows, accounting for 61.9 percent or $794 million of the total amount pulled out of the Philippines.

After maintaining a hawkish pause between May and September this year, the BSP’s Monetary Board delivered an off-cycle 25-basis-point rate hike on Oct. 26 due to the possible disanchoring of inflation expectations.

Ricafort said a possible easing trend in year-on-year headline inflation due to higher base effects would still allow the achievement of the BSP’s inflation target of two to four percent by the first quarter of 2024.

This, he explained, would still support market sentiment and some bargain-hunting activities, which may result in better net foreign portfolio investments data for the coming months.

Hot money inflow amounted to $1 billion last year, reversing the net outflow of $2.4 billion in 2021 amid the impact of the pandemic.

The BSP further lowered its net hot money inflow target to $2 billion from the original forecast of $2.5 billion for this year, and $3 billion from $3.5 billion for next year.