• Hot money inflows hit 13-mth high

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    Net $482.43M reverses year-earlier outflow; highest since Feb 2015

    Net foreign portfolio investment inflows hit a 13-month high in March on positive sentiment after the US Fed signaled fewer interest rate hikes than initially expected this year. On the domestic front, steady monetary policy and favorable earnings reports from Philippine corporations also contributed to investor optimism.

    Hot-moneyData from the Bangko Sentral ng Pilipinas (BSP) on Thursday showed that hot money net inflows in March rose to $482.43 million.

    It was the highest net inflow recorded since the $1.190 billion recorded in February 2015.

    The March net was also a 58.1 percent improvement from the $57.74 million the previous month, and a reversal of the $21.58 million net outflows recorded a year earlier.

    Total inflows rose to $1.689 billion from February’s $1.068 billion but eased from the $2.082 billion posted a year earlier.

    Total outflows, meanwhile, rose to $1.206 billion from $1.011 billion the previous month but were lower than March 2015’s $2.104 billion.

    Focusing on the month-on-month growth of total outflows, the central bank in a statement said this is due to “renewed investor interest in government securities.”

    The BSP added that renewed interest was coupled with positive sentiment arising from the decision of the United States Federal Reserve to reduce the number of interest rate hikes in 2016 from four to two.

    The BSP’s decision to keep policy rates steady at 4 percent for overnight borrowings and 6 percent for overnight lending was also noted.

    Lastly, positive sentiment also rose on the favorable reports on corporate earnings during the month, it added.

    Sentiment shift

    “Foreign funds did flow back to emerging markets in a big way in March after sizeable outflows seen in January to February,” Emilio Neri Jr., lead economist and vice president at the Bank of the Philippines Islands (BPI), said.

    According to Neri, the Philippines clearly benefited from the sentiment shift, as resiliency of economic fundamentals remained generally intact relative to other Association of Southeast Asian Nations economies.

    Nevertheless, Neri pointed out, “Some of these funds, however, are likely to be speculative in nature and are expected to return to developed markets once the US delivers a rate hike later this year,” he, however, pointed out.

    “As in the last four years, we anticipate net foreign portfolio outflows from emerging markets to happen again around May. The Philippines is unlikely to be spared, given that election uncertainty will likely kick in next month,” he added.

    Components

    Most of the registered inflows, or 72 percent, went to Philippine Stock Exchange-listed firms. The funds were used to purchase shares in holding firms, banks, food/beverage/tobacco firms, property developers, and telecommunications companies.
    Another 28 percent went to peso government securities (GS).

    PSE-listed securities recorded a net inflow of $77 million, while peso GS yielded net inflows of $405 million.

    The United States, Singapore, the United Kingdom, Switzerland, and Hong Kong were the top five investor countries for the month with a combined share of 79.2 percent.

    The US was the main destination of outflows, accounting for 82.3 percent of the total.

    Also called hot money because of the ease by 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 assets such as factories and equipment.

    Hot money yielded a net outflow of $599.70 million last year, exceeding the central bank’s forecast of $200 million.

    A larger net outflow of $1.3 billion is expected for 2016 given uncertainties surrounding China, other emerging markets, as well as the next moves of the US Federal Reserve.

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