Net ‘hot money’ inflow reaches record $4.4 billion

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) reported that the country’s net foreign portfolio investments or ‘hot money’ hit a new record level of $4.4 billion as of the second week of December as capital flows continued to flood emerging market economies including the Philippines.

Data from the central bank showed that the net inflow of hot money as of Dec. 11 was $4.01 billion, more than 10 times the $387.82 million registered in the same period last year.

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

Total inflows more than doubled to $12.28 billion from $6.03 billion due to the sharp increase in investments in shares of stocks listed at the Philippine Stock Exchange (PSE). These investments helped catapult the PSE index to a record level.

Major beneficiaries of the strong capital inflows included banks, property developers, holding firms, telecommunications companies, and utility firms.

Major sources of foreign portfolio investments are the US, the United Kingdom, Singapore, Luxembourg, and Hong Kong.

On the other hand, outflows went up by 39.5 percent to $7.87 billion from a year-ago level of $5.64 billion. Outflows comprised mainly of withdrawals from interim peso deposits where funds are parked pending repatriation or reinvestment.

BSP Governor Amando M. 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,” Tetangco said. –Lawrence Agcaoili (The Philippine Star)