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More ‘hot money’ leaves PHL markets

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MORE FOREIGN CAPITAL flowed out of the Philippines than what entered in January as investors opted to put their money in safer havens in a month which saw geopolitical uncertainties, the coronavirus disease 2019 (COVID-19) outbreak and regulatory risk in the local market.

Foreign portfolio investments — also called “hot money” due to the ease by which these funds enter and leave the economy — yielded a net outflow of $486.1 million in January, according to data released by the Bangko Sentral ng Pilipinas (BSP) on Thursday.

This outflow was bigger than the $320-million net outflow seen in December and a reversal of the $762.82 million net inflow logged in January 2019.

Gross outflows in January totaled $1.721 billion, higher than the $1.299 billion recorded a year ago and the $1.435 billion seen in December.

Meanwhile, gross inflows amounted to $1.235 billion, lower than the $2.061 billion in January 2019 but higher than the $1.114 billion from the preceding month.

According to the central bank, more than half or 65.9% of the portfolio investments in January went into securities listed in the Philippine Stock Exchange, which were mainly channeled into property companies, holding firms, banks, food, beverage, and tobacco firms, and telecommunications companies.

Meanwhile, the remaining 34.1% went to peso government securities.

The BSP said the United Kingdom, United States, Singapore, Luxembourg, and Hong Kong were the top five investor countries with a combined share to total of 79% in January.

“Developments for the month included: (i) continuing geopolitical tensions between the US and Iran; (ii) ongoing trade negotiations between the US and China,” the central bank said.

Other events that were on the background for the month included the “renegotiation of the contracts of the country’s water concessionaires; and investor concerns on the spread of the novel coronavirus originating from Wuhan, China,” the BSP added.

January put the market in a risk-off mood, according to ING Bank NV-Manila Senior Economist Nicholas Antonio T. Mapa.

“All these developments [prompted] investors to seek relative safe havens for the time being,” Mr. Mapa said in an e-mail.

For his part, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a text message that the “January portfolio outflows were likely triggered by concerns over Taal Volcano’s eruption, particularly in the property segment.”

“Rising regulatory risk may have also triggered further capital flight last month, consistent with the underperformance of PSE (Philippine Stock Exchange) among major market indices worldwide,” he added.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said hot money flows may still recover in the coming months if the COVID-19 outbreak is contained.

“UnionBank’s Economic Research Unit believes that not just hot money but economic growth in general will recover in H2 2020, as soon as the COVID-19 outbreak, its eventual containment, and its actual economic impact is realized,” Mr. Asuncion said in an e-mail.

ING’s Mr. Mapa said the view that the country is among those least vulnerable to the economic fallout from the virus on the back of its lower exposure to both Chinese tourism and trade will likely attract funds back to the Philippines.

“In February, we’ve seen a bit of a reversal with foreign inflows returning with the Philippines adjudged as the ‘least affected’ by the economic fallout from COVID-19 compared to our neighbors,” Mr. Mapa said.

The BSP expects a net hot money inflow of $8.2 billion this year, based on projections given in December. Hot money logged a net outflow of $1.9 billion in 2019. — L.W.T. Noble









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