‘Hot money’ triples to $1.65 B in 4 months

Manila, Philippines – The inflow of foreign portfolio investments or “hot money” almost tripled in the first four months of the year on the back of strong investments in shares listed at the Philippine Stock Exchange (PSE) and peso-denominated government securities, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Amando M. Tetangco Jr. said in a statement that net inflows of foreign portfolio investments or hot money reached $1.65 billion in January to April or $1.05 billion higher than the $594.86 million in the same period last year.

Tetangco reported that investments in peso-denominated debt papers surged 628 percent to $3.1 billion in the first four months of the year while investments in PSE-listed shares surged 220 percent to $3.1 billion from $2 billion.

He pointed out that combined amounts of investments in peso-denominated government securities and PSE listed shares accounted for about 97.8 percent of the total inflows from January to April this year.

“Favorable yields and less risky income securities continued to attract foreign investments to the country,” Tetangco stressed.

Data showed that inflows of foreign portfolio investments soared 125 percent to $6.26 billion in the first four months of the year from $2.78 billion in the same period last year.

The BSP chief said major beneficiaries in PSE-listed shares were holding firms with $871 million, banks with $591 million, telecommunication providers with $437 million, utility companies with $430 million, and property companies with $376 million.

Other investments went to peso time deposits with $128 million, unit investment trust funds with $6 million, and money market instruments with $6 million.

Top source of foreign portfolio investments in the first four months included Singapore, US, United Kingdom, Luxemburg, and Hong kong.

On the other hand, data showed that outflows consisting of withdrawals from interim peso deposits more than doubled to $4.62 billion in the first four months of the year from $2.18 billion in the same period last year.

For the month of April alone, Tetangco said net inflows of foreign portfolio investments surged 220 percent to $673.8 million from $210.11 million in the same month last year despite the Holy Week break in the third week of April.

“The four weeks of April were characterized by positive flows except for the third week (Holy Week) when investors restored to profit-taking in anticipation of the four-day weekend,” he explained.

Hot money inflows went up by 52 percent to $1.7 billion in April from $1.12 billion in the same period last year as investments in PSE listed shares increased by 28.3 percent to $934 million while investments in peso-denominated debt papers jumped 280 percent to $687 billion.

Investments in PSE-listed shares last month went to holding firms with $336 million, banks with $155 million, telecom firms with $153 million, property developers with $104 million, and utility providers with $100 million.

Other investments went to peso time deposits with $77 million, unit investments trust funds with $6 million, and money market instruments with $1 million.

“Strong marcoreconomic fundamentals buoyed the keen interest in portfolio investments to the country in 2011, in contrast to a year ago when uncertainties loomed in April, a month before te May 2010 Philippine elections, leading investors to remain in the sidelines,” the BSP chief added.

Meanwhile, outflows last month increased by 12.8 percent to $1.03 billion from $913.12 million in April last year.

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.

Monetary authorities believe that there is no need to constrict the strong inflows of foreign capital into emerging markets including the Philippines as the domestic economy could still absorb the inflows without stoking up inflation.

BSP Deputy Governor Diwa Guinigundo earlier told reporters that monetary authorities believe that the strong foreign exchange inflows into the country remains under control.

“We are always open to the conventional monetary tools after all they (inflows) have not reached that proportion where capital controls are made necessary,” Guinigundo stressed.

Guinigundo said the weaker than expected economic growth in advanced economies led by the US would serve as an impetus to further capital flows to emerging markets including the Philippines.

Strong capital inflows, he warned, could stoke up inflation through excessive liquidity in the financial system.

“That would warrant additional vigilance on the part of the BSP to make sure that they (capital inflows) do no exacerbate the levels of liquidity and fuel inflation in the future,” he explained. –Lawrence Agcaoili (The Philippine Star)