‘Hot money’ inflow down 11.5% in 2011

MANILA, Philippines – Portfolio investment inflows, also known as “hot money,’’ retreated by 11.5 percent in 2011, reflecting the jittery mood of fund managers worldwide brought about by rising growth concerns in the US and the debt crisis in Europe.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. reported yesterday that “hot money” or speculative investments amounted to $4.08 billion in 2011, about $530 million lower than the previous year’s $4.61 billion.

For   December alone, portfolio investment inflows   plunged 67.4 percent to $139.5 million from $428.4 million in the same month in 2010.

Tetangco traced the decline to the decision of investors to cash in on their profits in the Philippines amid the growth concerns in the US, the debt crisis in Europe, and the filing of charges against former President and now Pampanga Rep. Gloria Macapagal-Arroyo.

“This was due to persistent euro zone debt crisis, the United States’ shaky economy, the developments in the Korean peninsula, and the political concerns at home which trigerred profit taking,” Tetangco stressed.

The BSP also reported that gross inflows jumped 26.7 percent to $16.47 billion last year from $12.99 billion in 2010. The bulk of the investments came from Singapore, United Kingdom, US, Luxemburg, and Hong Kong.

Investments in Philippine Stock Exchange-listed shares inched up by 8.8 percent to $9.2 billion from $8.5 billion of which $2.1 billion went to holding firms, $1.5 billion to banks, $1.4 billion to telecom providers, $1.3 billion to property developers, and $967 million to manufacturers of food, beverage, and tobacco.

Likewise, investments in peso-denominated government securities reached $6.7 billion followed by peso time deposits with $496 million, money market instruments with $14 million, and unit investment trust funds with $6 million.

On the other hand, Tetangco pointed out that outflows comprising of withdrawals from interim peso deposits jumped 47.8 percent to $12.39 billion from $8.38 billion due to uncertainties in the Eurozone area.

The BSP chief cited that transactions in PSE-listed shares posted a net outflow of $170 million last year but investments in peso denominated government securities peso time deposits, money market instruments, and unit investment trust funds posted a net inflow of $4.254 billion.

Combined investments in PSE-listed shares and peso denominated debt papers fell 25.2 percent to $1 billion from $1.4 billion.

Despite the drop, monetary authorities are convinced that emerging markets in Asia including the Philippines would continue to attract foreign capital inflows.

The inflow of foreign portfolio investments hit a new record level of $4.61 billion in 2010 or nearly 12 times the $388.02 million in 2009 as funds flooded emerging markets including the Philippines due to the fragile growth in advanced economies led by the US and Europe.

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

As a preemptive move to keep inflation expectations well anchored, the raised interest rates by 50 basis points in the first half of last year 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 is currently pegged at 4.50 percent while the overnight lending rate is at 6.50 percent. –Lawrence Agcaoili (The Philippine Star)