By Melissa Luz T. Lopez, Senior Reporter

MORE FOREIGN FUNDS entered the Philippines in January, compared to gross inflows the preceding month and a year ago, but a bigger increase in total outflows caused net inflows to shrink in those comparative periods, according to data the central bank released on Thursday evening.

Foreign portfolio investments posted a $162.16-million net inflow last month that was nevertheless down 46.185% from the year-ago $301.33 million and 64.51% smaller than December’s $456.93 million.

These investments are more commonly known as “hot money,” as such funds enter and leave the country with ease with any development that affects investor sentiment.

January marked the third straight month of net inflows, signalling sustained investor optimism towards the Philippine economy.

“On the overall, transactions for the month yielded net inflows of $162 million attributable to investor optimism over the passage of the first phase of the government’s tax reform program, positive news on corporate earnings, and expected higher government spending for infrastructure projects,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The much-anticipated Tax Reform for Acceleration and Inclusion Act which took effect Jan. 1 reduces personal income taxes for those earning below P2 million, alongside a simpler system for computing donor and estate taxes.

Foregone revenues will be offset by the removal of some exemptions to value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements.

The higher taxes are expected to offset foregone revenues from income tax cuts and generate P82.3 billion in fresh funding this 2018. This, in turn, will help fund the P1.1-trillion infrastructure budget needed for the entire year.

On Jan. 23, the Philippine Statistics Authority also announced that the economy grew by 6.6% in 2017’s fourth quarter, which pulled full-year growth at 6.7% in 2017, well within the government’s 6.5-7.5% goal.

Investors put in $1.623 billion last month, 41.51% more than the year-ago $1.147 billion and just 0.042% up from December’s $1.559 billion, but took out $1.461 billion that was 72.75% more than the year-ago $845.83 million and 32.636% up from December’s $1.102 billion.

The first four weeks of the month saw more foreign funds entering the country against what exited, peaking with $103.50 net inflows in the Jan. 22-26 week.

Some 69.2% of these investments went into shares of stock issued by companies listed on the Philippine Stock Exchange (PSE), which resulted in $80-million net inflows. Foreign investors preferred to place their bets on holding companies; banks; property developers; food, beverage and tobacco firms; and utilities, the BSP said.

The bellwether PSE index logged nine record highs in January, ending with 9,058.62 on Jan. 29.

Meanwhile, 30.8% of the investments went into peso-denominated bonds issued by the Philippine government, resulting in $82-million inflows.

Bulk of the inbound funds came from the United Kingdom, the United States, Malaysia, Singapore, and Hong Kong.

About 79.9% of the outbound flows went to the US as a safe haven for investments.

The central bank expects $900 million in net outflows this year. In 2017, the BSP recorded $205.03-million net hot money outflows, still better than the $2.5 billion in outbound funds which they expected.

Monetary authorities said positive investor sentiment prevailed in the latter part of 2017 amid robust macroeconomic fundamentals and progress towards enactment of the first of up to five planned tax reform packages, which helped offset the impact of market jitters over local and international events that otherwise spurred capital outflows.

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