Net ‘hot money’ inflow surges 230%

MANILA, Philippines – The net inflow of foreign portfolio investments or “hot money” jumped 230 percent in the first eight months of the year as foreign capital continued to flood emerging market economies, including the Philippines, albeit at a slower pace over the past few weeks, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data released by the central bank showed that foreign portfolio investments reached $3.06 billion from January to August, or $2.13 billion higher than the net inflow of $925.96 million booked in the same period last year.

Gross inflow of hot money more than doubled to $11.834 billion in the first eight months of the year from $5.766 billion in the same period last year while outflows jumped 81.3 percent to $8.776 billion from $4.84 billion.

The BSP said investments in shares listed at the Philippine Stock Exchange (PSE) increased 51.2 percent to $6.2 billion from $4.1 billion last year, with the bulk of investments going to holding firms with $1.5 billion followed by banks with $1.1 billion, property developers with $894 million, telecom providers with $788 million, and utility companies with $734 million.

On the other hand, investments in peso-denominated government securities more than quadrupled to $5.4 billion from $1.2 billion while investments in peso time deposits amounted to $293 million and unit investment trust funds with $6 million, as well as money market instruments with $6 million.

Major sources of hot money during the period included Singapore, the United Kingdom, US, Luxemburg and Hong Kong.

For the month of August alone, the BSP said net inflows surged 75.1 percent to $394.09 million from $225.06 million in the same month last year. Gross inflows jumped 70.6 percent to $1.344 billion from $787.9 million while outflows rose 68.8 percent to $950.35 million from $562.84 million.

The central bank pointed out that investments in PSE-listed shares fell 7.6 percent to $659 million in August from $713 million in the same month last year while investments in peso-denominated government securities reached $685 million.

BSP Governor Amando Tetangco Jr. said emerging markets in Asia, including the Philippines, would contine 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.

“There has been some risk off in the last few days so capital has tended to flow out over the last few days. But when the dust settles it is expected that the emerging markets, including the markets in Asia, will continue to attract capital flows because of the good economic prospects compared to the prospects with the rest of the world as well as the other economic improvements that made the countries in Asia more resilient to crises,” Tetangco stressed.

He pointed out that monetary authorities would continue to watch for subsequent developments and would be vigilant for possible reversals of capital flows.

“There will be reversals and we should be able to respond properly, effectively, and appropriately. Right now the view is that it is going to be temporary,” the BSP chief stressed.

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 due to the fragile growth in advanced economies led by the US and Europe. –Lawrence Agcaoili (The Philippine Star)