Hot money outflow narrows in April

MANILA, Philippines — More short-term investments left the Philippines for the second straight month in April, albeit narrower than the outflows recorded in the same month last year, amid geopolitical tensions in the Middle East.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that foreign investments registered with the central bank, through authorized agent banks, recorded a net outflow of $312.18 million in April, 11.3 percent lower than a year ago.

However, the outflows in April surged by 32.3 percent from the $236.02 million outflows in March.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the narrower hot money outflows in April may have to do with the easing of geopolitical tensions between Israel and Iran, with no new response between the two since April 20.

But more speculative funds left the Philippines compared to March, before direct Israel-Iran tensions started on April 1, he said.

“Inflation still within the BSP’s target despite some slight pickup in recent months is also an offsetting positive factor, as global crude oil prices hovered among two-year lows,” he said.

Ricafort said some risk factors that may have contributed to the outflows in April include the El Niño weather phenomenon that led to higher local rice prices and weaker peso.

“China-Philippine tensions in disputed territory, such as China water cannon attacks, as well as risk of La Niña later this year are other risk factors,” he added.

Based on BSP data, the Philippines yielded a gross inflow of $913.62 million worth of hot money in April, a 28.2-percent increase from the same month last year.

The majority of registered investments, or 59.3 percent, were in securities listed at the Philippine Stock Exchange, particularly in banks, holding firms, property, transportation services as well as food, beverage and tobacco.

A total of 40.5 percent went to peso government securities. The top five investor countries for the month were the US, United Kingdom, Singapore, Luxembourg and Hong Kong, with a combined share totaling 87.9 percent.

On the other hand, gross outflows climbed by 15.1 percent to $1.22 billion. The US received 43 percent of total outward remittances.

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

For the first four months of the year, the Philippines booked a net inflow of hot money amounting to $44.33 million, a turnaround from the $730 million outflows last year.

Last year, the Philippines missed its net inflow target of $1 billion as the net outflow of speculative funds amounted to $248.84 million. This was also a reversal from the $886.7 million net inflow in 2022.

The BSP expects foreign portfolio investments to recover strongly with a net inflow of $1.3 billion for this year and $1 billion next year.