Net ‘hot money’ inflow soars 244% in H1

MANILA, Philippines – The inflow of foreign portfolio investments or “hot money” more than tripled in the first half 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 surged 244 percent to $2.36 billion during the first six months of this year from $686.57 million in the same period last year.

Tetangco pointed out that inflows more than doubled to $9.14 billion in the first six months of the year from $4.33 billion in the same period last year.

Data showed investments in PSE-listed shares rose 57 percent to $4.7 billion from $3 billion and major receipients were holding firms with $1.2 billion, banks with $798 million, telecommunications companies with $629 million, property developers with $603 million, and utilities firms with $594 million.

Furthermore, investments in peso-denominated government debt papers jumped 322 percent to $4.2 billion from $995 million due to favorable rates especially for longer-dated government securities.

“Combined investments in PSE-listed shares and peso government securities comprised 96.7 percent of total registered investments,” he stressed.

The remaining 3.3 percent was cornered by peso time deposits with $292 million, unit investment trust funds with $6 million, and money market instruments with $6 million.

On the other hand, the BSP chief reported that outflows comprising mostly of withdrawals from interim peso deposits rose 84.7 percent to $6.68 billion in the first half of the year from $3.67 billion in the same period last year.

For the month of June alone, the BSP chief reported that hot money reversed to a net inflow of $353.79 million from a net outflow of $85.84 million in the same month last year as inflows went up by 67.5 percent to $1.35 billion from $809.36 million while outflows climbed 11.9 percent to $1 billion from $895.19 million.

Last month, investments in PSE-listed shares increased 55 percent to $726 million from $468 million in the same month last year. Major beneficiaries include holding firms with $195 million, banks with $119 million, telecom providers with $109 million, property developers with $106 million, and utility firms with $86 million.

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.

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

Last June 16, the BSP raised the reserve requirement for banks to 20 percent from19 percent as a preemptive move to counter any additional inflationary pressures from excessive liquidity. –Lawrence Agcaoili (The Philippine Star)