Hot money back to net inflow; target at risk

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b1Foreign portfolio investment began flowing back into the Philippines in October after seven straight months of net outflows, official data showed Friday, as concerns over a US Federal Reserve rate hike and other global developments eased.

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The central bank said the improvement from September came as investors put their money in government securities.

However, it warned that uncertainty remained and could still cause the government to miss its “hot money” target this year.

October saw a net inflow of $27.84 million, a reversal from the net outflows of $323.98 million in September and $179.90 million a year earlier, according to Bangko Sentral ng Pilipinas (BSP) data.Total inflows increased to $1.65 billion from September’s $1.37 billion but were lower than the $1.75 billion recorded a year earlier. Total outflows, meanwhile, fell to $1.62 billion from $1.69 billion a month earlier and October 2014’s $1.93 billion.

Most of the registered inflows went to the stock market. With a 68.6 percent share, the funds were used to purchase shares in property companies, holding firms, banks, food/beverage/tobacco firms and telecommunications companies. Another 31.2 percent went to peso government securities (GS) and 0.3 percent was invested in other peso debt instruments (OPDIs).

While PSE-listed securities accounted for the bulk of inflows, October still saw this segment recording a net outflow of $140 million. Peso GS and OPDIs yielded a net inflow of $163 million, the central bank said.

The United Kingdom, United States, Singapore, Belgium, and Japan were the top five investor countries for the month with a combined share of 78.2 percent. The US remained the main destination of outflows, receiving 73.2 percent of the total.

An analyst, meanwhile, said the stock market had benefited from “risk on” sentiment arising from developments in the United States, China and the eurozone.

Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, said investors went for riskier assets during the month after September’s US non-farm payrolls number came in well below consensus.

A monetary policy easing in China and comments from European Central Bank chief Mario Draghi hinting of a eurozone stimulus “caused a rebound in the Philippine Stock Exchange index,” Mapa said.

Sentiment has since reversed as the likelihood of a Fed a rate hike in December increased and the central bank said it could be difficult to hit its 2015 target of $1.4 billion in net hot money flows.

“There is still a lot of uncertainties in the market. Hence, the target of a higher foreign portfolio investments could be a challenge,” central bank Deputy Governor Diwa Guinigundo said.

Year to date, foreign portfolio investments have yielded a net outflow of $360.38 million, narrower than the $1.08 billion recorded a year earlier. Total outflows of $17.97 billion offset total inflows of $17.61 billion, the central bank reported.

Called hot money because of the ease with which the funds enter and leave the country, foreign portfolio investments are invested in Philippine financial assets and do not necessarily create jobs, unlike foreign direct investments that are put into in assets such as factories and equipment.

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