Investor wariness leads to net hot money outflows

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Political developments here and abroad led to a reversal in foreign portfolio investment (FPI) flows last month, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday.

So-called “hot money” saw a net outflow of $58 million in August, the largest since May’s $24.35 million, central bank data showed. A year earlier, portfolio investments posted a net inflow of $427.07 million.
In July, FPI posted a net inflow of $206.47 million.

Hot money inflows totaled $936 million in August, down 34.7 percent from July and 46.7 percent lower compared to the same month last year.

Outflows reached $994 million, down 19.1 percent month on month but 25.3 percent higher from last year.

The BSP blamed “ghost” month for the outflows as well as investor reaction to tensions between the United States and North Korea, mixed second-quarter corporate earnings, the government’s reinvigorated anti-drug campaign and alleged anomalies at the Bureau of Customs.

Business activities are said to slow down during ghost month, which this year runs from August 22 to September 19 based on the Chinese calendar, as investors postpone purchases and other financial activities.

Year-to-date

Year to date, hot money registered a net outflows of $318.88 million, also a reversal from the $1.97-billion net inflows recorded year earlier.

The central bank traced this to “certain domestic and international developments, such as the US air strike against Syria, global terrorist attacks, interest rate increase by the US Federal Reserve, political turmoil in the US, and the closure order for several mining companies in the country.”

An analyst said outflows could increase in the coming months on continued geopolitical tensions and tighter monetary policies in Europe and the US.

“Given continued expectations of tightening moves from the ECB (European Central Bank) and the Fed, net FPI outflows are expected to be a norm in the coming months as funds flow back to economies with a rising interest rate environment,” Land Bank of the Philippines market economist Guian Angelo Dumalagan said.

“Geopolitical tension might also continue to weigh down on FPI,” he added.

The bulk or 84.9 percent of the August’s hot money was invested in Philippine Stock Exchange (PSE)-listed securities, mainly in banks; holding firms; food, beverage and tobacco companies; property companies, and transportation services companies.

“The 15.1 percent balance mainly went to peso government securities (GS). Transactions in PSE-listed securities yielded net inflows, while investments in peso GS and other peso debt instruments resulted in net outflows,” the BSP said.

The United Kingdom, United States, Luxembourg, Malaysia, and Hong Kong were the top five investor countries with a combined share of 77.7 percent of the total. The US accounted for the largest amount of repatriated funds at 79.9 percent.

Foreign portfolio investments are called “hot money” because of the ease by which these can be invested and taken out of the country. The investment does not necessarily create jobs, unlike foreign direct investments that are used to build factories and buy capital equipment.

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