• Dec hot money net outflows widen

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    But full-yr 2016 reverts to net inflow

    FOREIGN portfolio investments saw a net outflow of $365.49 million in December 2016, but the full-year figure remained in positive territory because of higher money placements in Philippine Stock Exchange-listed stocks, the central bank said Thursday.

    Still, an economist warned that the Philippines should expect more “hot money” outflows this year on expectations of higher interest rates in the United States and amid uncertainty over President-elect Donald Trump’s policies.

    The net outflow last month was wider than the $170.52 million recorded in December 2015, but narrower than the $607.31-million net inflow in November 2016.

    The Bangko Sentral ng Pilipinas (BSP) did not provide an explanation for the level of hot money in December aside from stating that the $1.36 billion in outflows surpassed the $1-billion inflows during the month.

    Outflows eased by 2.4 percent to $1.36 billion in December 2016 from $1.40 billion a year earlier, and by 23 percent from $1.79 billion in November 2016. Registered investments, meanwhile, eased 18 percent from $1.23 billion a year earlier. From November, inflows went down by 15 percent from $1.19 billion.

    Net inflows for 2016

    The picture was different for the full year. Inflows of foreign portfolio investments in 2016 exceeded outflows by $353.59 million—a reversal of the $599.69 million in net outflows recorded in 2015.

    The BSP said the net inflows were largely due to “an initial public offering by an industrial company; investments in shares of two (2) holding companies and a universal bank; and renewed interest in peso government securities.”

    This was in sharp contrast to the net outflows in 2015, attributed to growing concerns over an interest rate adjustment in the United States and profit-taking.

    Most of the registered inflows in 2016, or 82.5 percent, went to shares traded on the Philippine Stock Exchange, while 17.3 percent went to peso government securities.

    Registered foreign portfolio investments for 2016 totalled $17.6 billion, 11.8 percent lower than the $19.9-billion level of the previous year. Outflows for 2016 of $17.2 billion were 16.1 percent lower compared with the $20.5 billion recorded in 2015.

    Accounting for 76.7 percent of the portfolio investments were the United Kingdom, the United States, Singapore, Luxembourg and Hong Kong. The US was the main destination of outflows, accounting for 83.1 percent of total fund transfers.

    Foreign portfolio investments are also known as hot money because of the ease with which the funds move in and out of a country and do not necessarily create jobs, unlike foreign direct investments that are used to build factories and buy capital equipment.

    More outflows seen

    This year, there might be more outflows than inflows of foreign portfolio investments “due to expectations of at most three US interest rate hikes in 2017,” said Land Bank of the Philippines market economist Guian Angelo Dumalagan.

    Higher US interest rates and expectations of faster US growth might prompt foreign investors to move their funds back to the US economy, he said.

    While this might be the most probable scenario, Dumalagan stressed that the level of uncertainty was high, as this view hinges primarily on expectations that the next US president will pursue a campaign pledge to boost spending and the economy.

    “Any deviation from this view could turn the tables around, especially since a lower-than-expected US fiscal boost could also trim the number of US rate hikes this year,” he said.

    Despite likely higher hot money outflows, inflows might trail close behind on account of the Philippines’ solid economic prospects this year, the economist said.

    “Likely firm domestic economic activity could invite foreign investors to participate in and profit from the country’s solid growth momentum,” Dumalagan added.

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