Net hot money inflow up 135% in January-February

MANILA, Philippines – The net inflow of foreign portfolio investments or “hot money” jumped 135 percent in the first two months of the year due to a surge in investments in shares listed at the Philippine Stock Exchange (PSE) and peso-denominated government securities as investors continued to place their funds in high-yielding investment instruments, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Amando M. Tetangco Jr. said in a statement that net inflow of foreign portfolio investments or “hot money” reached $727.17 million in January and February or $418.5 million higher than the $308.71-million net inflow booked in the same period last year.

Data showed that inflow of foreign portfolio investments almost tripled to $3 billion in the first two months of the year from $1.07 billion in the same period last year as investments in PSE-listed shares went up by 68.3 percent to $1.4 billion.

Tetangco said major beneficiaries were banks with $336 million, holding firms with $248 million, utility companies with $241 million, property companies with $182 million, and telecommunications providers with $167 million.

On the other hand, he pointed out that outflows also almost tripled to $2.279 billion in the first two months of the year from $767.7 million in the same period last year.

For the month of February alone, net inflow of foreign portfolio investments surged 278 percent to $534.08 million from $138.58 million in the same month last year as investments in peso-denominated government debt securities surged by 711 percent to $730 million from $90 million.

“Favorable yields have attracted foreign investors to peso-denominated government securities placements,” Tetangco explained.

He added that investments in PSE-listed shares doubled to $740 million in February from $370 million in the same month last year.

The BSP chief said major source of foreign portfolio investments include Singapore, the US, United Kingdom, Luxembourg, and Hong Kong.

Data showed that total inflows almost tripled to $1.47 billion in February from $500 million in the same month last year.

Outflows consisting of withdrawals from interim peso deposits jumped 158 percent to $935.46 million from $361.81 million.

“These are believed to be in reaction to the sharp rise in oil prices stemming from escalating violence in the Middle East and North Africa, fuelling investor concerns,” he said.

The growth of foreign portfolio investments eased to 13.5 percent in January as investors started to take profits during the height of the tensions in Egypt. Data showed that foreign portfolio investments posted a net inflow of $193.09 million in January or $22.96 million higher than the net inflow of $170.13 million booked in January last year.

Inflows surged 166.8 percent to $1.537 billion in January from $576.05 million in the same month last year while outflows jumped at a faster rate of 223.7 percent to $1.344 billion from $405.92 million while outflows to the withdrawals from interim peso deposits representing divestment proceeds from registered investments that were parked in accounts pending reinvestment or repatriation.

The inflow of foreign portfolio investments hit a new record level of $4.61 billion last year or nearly 12 times the $388.02 million in 2009 as funds continued to flood emerging markets including the Philippines due to the fragile growth in advanced economies led by the US and Europe.

The amount of foreign portfolio investments registered surpassed the full year target of $2.9 billion set by monetary authorities for 2010. These investments are also called hot money because they could be taken out of the country as quickly as they come in.

Tetangco earlier 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.

According to him, a large part of the liquidity in the financial system are parked in the vault of the BSP in the form of special deposit accounts (SDAs) that amount close to P1.5 trillion. –Lawrence Agcaoili (The Philippine Star)