‘Hot money’ hits record $3.44 billion as of November

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) reported that the country’s foreign portfolio investments or “hot money” hit a new record level of $3.44 billion as of the second week of November as capital flows continued to flood emerging market economies in the Asia Pacific Region, including the Philippines.

BSP Governor Amando M. Tetangco Jr. told reporters that the shift of funds from advanced economies into emerging markets resulted in a 826-percent rise in foreign portfolio investments to $3.44 billion as of Nov. 12 from $372.02 million as of the same period last year.

“There is a significant amount of liquidity globally and a significant part of this liquidity is going to emerging markets,” Tetangco said.

The amount of foreign portfolio investments registered as of Nov. 12 already surpassed the full year target of $2.9 billion set by monetary authorities. These investments are also called hot money because they can exit the country as quickly as they come in.

Data from the central bank show foreign portfolio inflows surged 81 percent to $10.197 billion as of Nov. 12 this year from $5.63 billion in the same period last year while outflows increased by 28.4 percent to $6.75 billion from $5.26 billion.

“(This is because of the) strong economic performance of emerging markets also the favorable performance of the financial markets in this country. In the case of the Philippines, the stock market is up by about 40 percent. In terms of prospects for future growth, the emerging markets are also ahead of developed economies and the expectation is that future growth is going to be led by emerging markets,” Tetangco added.

He pointed out that the net foreign portfolio investment inflows surged for the second week of November alone reached $728.7 million or $770 million higher than the net inflow of $12.33 million in the same period last year.

This after inflows surged by 985 percent to $951.9 million in the second week of November from $87.7 million in the same period last year while outflows increased by 124.4 percent to $169.2 million from $75.4 million.

Monetary officials attributed the sharp rise in foreign portfolio investments or hot money to the sharp increase in investments in shares of stocks listed at the Philippine Stock Exchange (PSE). Strong foreign buying catapulted the PSE index to a record level of 4,200 points early this month.

Major beneficiaries of the strong capital inflows included banks, property developers, telecommunications companies, holding firms, and utility firms while major sources of foreign portfolio investments include the US, the United Kingdom, Singapore, Luxembourg, and Hong Kong.

The National Statistics Office (NSO) recently reported that the country’s domestic output as measured by the gross domestic product (GDP) posted a stronger-than-expected growth of 7.5 percent in the first three quarters of the year from 0.7 percent in the same period last year. For the third quarter alone, the GDP growth eased to 6.5 percent from eight percent in the first half of the year.

Tetangco stressed the need for the government to transform the “hot money” or speculative investments into long-term investments. “Hot money” refers to funds that are controlled by investors who actively seek short-term returns and high interest rate investment opportunities.

He pointed out that there is a need for long-term investments such as major infrastructure projects under the public private partnership (PPP) scheme so the ample liquidity in the financial system could be deployed into productive uses.

“For us to transform this liquidity into productive uses, there has got to be users or investors that will utilize or take advantage of the ample liquidity to finance their development projects,” the BSP chief added.

According to him, a large part of the liquidity in the financial system is parked in the vault of the BSP in the form of special deposit accounts (SDAs) that amount to close to P1 trillion.

“Right now a large part of this liquidity is parked with the BSP in the form of SDAs. If there is a need for loans or if there is an increase in demand for loans, this liquidity will tend to flow out of BSP and move to this productive uses, such as projects such as PPP,” he said. -Lawrence Agcaoili (The Philippine Star)