Hot money outflow eases


Down to $91.5M in March from $361M in February

HOT money flow, or the movement of portfolio investments, in and out of the Philippines in March resulted in a net outflow but at a much slower pace than in February, an indication of improving investor sentiment toward the local economy despite the United States Federal Reserve’s continued tapering stance.

March transactions resulted in a net outflow of $91.5 million, down sharply from the net outflow of $361 million in February and $395 million in March 2013.

Data from the Bangko Sentral ng Pilipinas (BSP) showed on Thursday that total outflows in March were recorded at $2.2 billion, still up by 19.8 percent from the $1.9 billion recorded in February. This was in reaction to news of further reduction by another $10 billion of the US quantitative easing program starting April, and plans to end the stimulus by year-end, the central bank said.

But foreign portfolio investment inflow surged by a much steeper 42.7 percent to $2.1 billion in March, from $1.5 billion in February. Year-on-year, registered investments were lower by 8.8 percent compared with the $2.3 billion posted a year earlier.

“The easing in net outflows may be attributed to positive investor reaction to the Federal Reserve’s announcement to maintain its current monetary policy, coupled with better-than-expected March inflation rate for the Philippines of 3.9 percent versus 4.2 percent in January and 4.1 percent in February,” the BSP said.

Justino Calaycay, analyst at the Accord Capital Equities Corp. said that the
Philippines remains an attractive haven for both short- and long-term portfolio funds.

Calaycay said that the improvement in the flow of hot money in March may have resulted from a combination of the weaker peso and the positive outlook for the Philippine economy.

“First, the Philippine peso has weakened versus the US dollar so far this year and even on a year-on-year basis. In fact, at the end of February 2014, the peso was nearly 10 percent weaker year-on-year and about 0.8 percent less than the end 2013 level,” he said.

The analyst explained that peso depreciation has made Philippine products, including financial assets, relatively cheaper in dollar terms.

Calaycay added that the improvement in the flow of registered investments can also be attributed to the country’s strong macroeconomic fundamentals as it was affirmed both by sustained stable to positive outlook by credit rating agencies and also the recent upward revision of gross domestic product growth projections by the International Monetary Fund, Fitch Ratings and Standard and Poor’s.

IMF and Fitch both said that the Philippine economy may expand by 6.5 percent this year, while S&P is seeing a slightly higher GDP growth of 6.6 percent. These projections are within the 6.5 percent to 7.5 percent growth target of the government for full year 2014.

Philippine Stock Exchange-listed securities contributed $153 million to the net inflow, but the reverse was noted in peso government securities transactions, which accounted for $231 million of the net outflows for the month.

“The United States, the United Kingdom, Singapore, Malaysia, and Luxembourg were the top five investor countries for the month with combined share to total 79.7 percent, while the United States continued to be the main destination of outflows receiving 84.5 percent of the total,” the BSP said.


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