Net hot money flows hit $206M in July – BSP

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Foreign portfolio investment flows were positive in July but the year to date tally remained in the red, data released by the Bangko Sentral ng Pilipinas (BSP) on Thursday showed.

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So-called “hot money” recorded a net inflow of $206.47 million last month, the biggest since January’s $301.33 million. The net inflow a year earlier was $1.06 billion.

Total inflows amounted to $1.43 billion in July, down 28.9 percent from June and 36.8 percent lower compared to the same month last year.

Total outflows reached $1.22 billion, down 36.8 percent month on month but 2.1 percent higher from last year.

The BSP attributed the net inflow to “positive investor sentiment on news of inflation declining to 2.8 percent in June from 3.1 percent in May; strong net foreign buying; investor reaction to President Rodrigo Duterte’s second State of the Nation Address; and the US Federal Reserve’s decision to maintain interest rates.”

Year to date, hot money registered a net outflow of $204.24 billion, a reversal from the $1.74-billion net inflow a year earlier.

This was traced 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 as the US Fed is likely to announce another rate hike.

“Higher US interest rates generally pulls foreign funds away from the Philippines back to the US economy,” Land Bank of the Philippines market economist Guian Angelo Dumalagan said.

He added that geopolitical concerns could also trigger outflows.

“The tension between the US and North Korea might be an event to watch out for, as it could introduce added volatility,” Dumalagan noted.

The bulk or 90.5 percent of the July’s hot money was invested in Philippine Stock Exchange-listed securities, mainly in food, beverage and tobacco companies, holding firms, banks, property companies, and utilities companies.

“The 9.5 percent balance went to peso government securities (GS). Transactions in PSE-listed securities yielded net inflows of $224 million, while investments in peso GS resulted in net outflows of $18 million,” the BSP said.

The United States, Singapore, United Kingdom, Luxembourg, and Switzerland and were the top five investor-countries with a combined share of 82.6 percent of the total. The United States accounted for the largest amount of repatriated funds at 86.1 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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