‘Hot money’ inflow hits record high in January-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 $4.18 billion as of end-November or almost 10 times the net inflow of $431.4 million in the same period last year as capital flows continued to flood emerging market economies in the Asia Pacific Region including the Philippines.

The amount of foreign portfolio investments in the first 11 months exceeds the full year target of $2.9 billion set by monetary authorities. These investments are also called hot money because they could be taken out of the country as quickly as they come in.

Data showed that inflows almost doubled to $11.8 billion from January to November this year compared to $5.95 billion in the same period last year due to the sharp increase in investments in shares of stocks listed at the Philippine Stock Exchange (PSE) that help catapult the PSE index to a record level.

Investments in PSE-listed shares jumped 71 percent to $7.7 billion in the first 11 months of the year from $4.5 billion in the same period last year.

Major beneficiaries of the strong capital inflows included banks with $1.5 billion, property developers with $1.38 billion, holding firms with $1.36 billion, telecommunications companies with $1.2 billion, and utility firms with $942 million. On the other hand, major sources of foreign portfolio investments include the US, the United Kingdom, Singapore, Luxembourg, and Hong Kong.

On the other hand, outflows increased by 36.2 percent to $7.413 billion in the first 11 months of the year from a year-ago level of $5.441 billion. Outflows comprised mainly of withdrawals from interim peso deposits where funds are parked pending repatriation or reinvestment.

For the month of November alone, net inflow of hot money reached $1.72 billion from $73.12 million in the same month last year. Inflows surged 522 percent to $2.68 billion frmo $431.25 million while outflows grew by 169 percent to $963.15 million from $358.12 million.

BSP Gov. Amando Tetangco Jr. earlier attributed the increase in inflows to the shift of funds from advanced economies into emerging markets including the Philippines.

“(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 stressed.

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.

Authorities said there is a need for long-term investments such as majr 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 advantge of the ample liquidity to finance their development projects,” the BSP chief added. –Lawrence Agcaoili (The Philippine Star)