Hot money inflows plunge 78% to $237.4 M in Oct

MANILA, Philippines – The inflow of foreign portfolio investments or “hot money” plunged 78.2 percent to $237.44 million in October from $1.088 billion in the same month last year as investors remained jittery due to the lingering debt crisis in Europe and the economic uncertainty in the US, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Amando M. Tetangco Jr. said gross inflows fell 49 percent to $916.25 billion in October from $1.797 billion last year while outflows retreated 4.1 percent to $678.82 million from $708.13 million.

The BSP data showed that of the total inflows last month to listed shares at the Philippine Stock Exchange (PSE) and government debt papers plunged 50 percent to $849 million in October from $1.7 billion in the same month last year. About $150 million went to holding companies, $148 million to diversified conglomerates, $119 million to property firms, $69 million to banks, and $56 million to telecom providers.

“Combined investments in PSE-listed securities and peso government securities were lower due to the lingering eurozone crisis,” Tetangco said.

Major sources of hot money last month include Singapore, United Kingdom, the US, Hong Kong, and Luxembourg. The US remained the main beneficiary of funds withdrawn from the Philippines.

Monetary authorities, however, said they are convinced emerging markets in Asia, including the Philippines, would continue to attract foreign capital inflows despite the massive outflows over the past few weeks in light of the sovereign debt crisis in Europe as well as debt concerns in the US.

In the first 10 months of the year, hot money inflow still rose 37.4 percent even as the amount of capital that flowed into the country plunged last month due to the economic uncertainty in the US as well as the debt crisis in Europe.

Tetangco said the net inflow of foreign portfolio investments reached to $3.445 billion from January to October or $937 million higher than the net inflow of $2.508 billion booked in the same period last year due to higher capital infusion to shares being traded at the PSE as well as government securities.

Gross inflow of hot money surged 84 percent to $14.139 billion in the first 10 months of the year from $8.986 billion in the same period last year.

Tetangco said investments in shares listed at the PSE inched up 9.6 percent to $7.4 billion from January to October compared to $6.7 billion in the same period last year.

About $1.8 billion went to holding companies, $1.3 billion to banks, $1.1 billion to property developers, $915 million to telecommunications providers, and $846 million to utility firms.

He added that investments in debt papers issued by the National Government surged 250.5 percent to $6.3 billion in the first 10 months from $1.8 billion in the same period last year as investors sought to reduce risk arising from the sovereign debt crisis in Europe and the economic slowdown in advanced economies.

Furthermore, about $497 million went to peso time deposits, unit investment trust funds, and money market instruments.

The BSP chief pointed out that outflows, consisting mainly of withdrawals from interim peso deposits, expanded 65.1 percent to $10.694 billion from $6.477 billion.

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.

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

As a pre-emptive move to keep inflation expectations well anchored, the BSP’s Monetary Board raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 due to the continued build up in inflation pressures brought about by escalating prices of oil and food in the world market. This brought the overnight borrowing rate at 4.50 percent and the overnight lending rate at 6.50 percent.

Monetary authorities believed that strong liquidity in the financial system amid continued strong capital inflows blunted the impact of adjustments in the monetary policy stance on market interest rates.

This prompted the BSP to raise the reserve requirement for banks by 200 percentage points to 21 percent from 19 percent last June 16 and July 28 as a pre-emptive move to counter any additional inflationary pressures from excessive liquidity. The twin increase is expected to siphon off at least P70 billion from the financial system.

The BSP is likely to keep interest rates steady until the end of the year due to the benign inflation outlook as well as the slower-than-expected growth in the first half of the year. –Lawrence Agcaoili (The Philippine Star)