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

By Luz Wendy T. Noble

MORE DOLLARS went out of the country in January, driving the balance of payments (BoP) to deficit after six months of surplus, on the back of foreign loan payments, the Bangko Sentral ng Pilipinas (BSP) said.

Data from the central bank showed the BoP position swung to a $1.355-billion deficit in January — a reversal from the $2.704-billion surplus in the same month of 2019. The last time the BoP position was in a deficit was June 2019.

“The BoP deficit in January 2020 reflected mainly the outflows arising from the national government’s foreign currency withdrawals, which were used largely to pay its foreign currency debt obligations as well as net outflows in foreign portfolio investments,” BSP said in a statement late Wednesday.

“These outflows were partially offset, however, by inflows representing the BSP’s net foreign exchange operation and income from its investments abroad during the month in review.”

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows that more money entered the Philippines.

Moreover, the central bank noted that this BoP position reflects the final gross international reserves (GIR) level of $86.87 billion as of end-January.

The BSP projects BoP position to be at a surplus of $3 billion by end-2020.

This position is enough as liquidity buffer for 7.6 months’ worth of imports of goods and payment services and primary income, according to the BSP. Likewise, it is also enough to cover “5.4 times the country’s short term external debt based on original maturity and four times based on residual maturity.”

The central bank set a $86-billion target for its dollar reserves in 2020.

“The latest BoP deficit may reflect some increase in volatility in the global financial markets in January 2020 largely brought about by concerns over the increased US-Iran tensions from Jan. 3-8, followed by concerns over novel coronavirus, as both factors caused some profit-taking in emerging markets, such as the Philippines,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail.

Moreover, Mr. Ricafort said investor concerns arose over elevated regulatory risks, arising from the Duterte administration’s review of “onerous” contracts with the private sector.

“Concerns on some highly regulated listed companies (since December 2019) amid greater scrutiny on alleged onerous government contracts also led to some sell off in the local stock market in January 2020…,” he added.

In December, President Rodrigo R. Duterte ordered the renegotiation of the Metro Manila water concession contracts with Manila Water Corp. and Maynilad Water Services, Inc. The government expanded its review of allegedly disadvantageous contracts with private companies to include Ayala Land, Inc.’s lease contract with the University of the Philippines and the Light Rail Transit (Line 1) contract with Ayala Corp. and Metro Pacific Investments Corp. (MPIC).

For his part, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said that the bulk of government payments which mainly caused the BoP deficit in January is a positive for the country’s image.

“Debt payments is a good sign of our ability to pay as a nation, and outflows from portfolio investments are expected because of market volatility and day-to-day changes in market perception,” Mr. Asuncion said in an e-mail, noting that the BoP level is “healthy and very stable” overall.

For the rest of 2020, analysts said the coronavirus disease 2019 (COVID-19) outbreak will have some effect, although still manageable.

“BoP surplus could be reduced largely due to the novel coronavirus concerns could slow down the global/local economy and global trade, especially tourism, travel, exports, and other related industries, in terms of lower foreign tourism receipts, exports, POGO (Philippine Offshore Gaming Operators) revenues and foreign investments amid the resulting slowdown in the global economy,” Mr. Ricafort said.

Despite the risks from the coronavirus outbreak, UnionBank’s Mr. Asuncion is of the view that BoP is likely to sustain its “healthy position throughout 2020 and will afford the economy ample financial flexibility with regard to its external position.”

Meanwhile, Security Bank Corp. Chief Economist Robert Dan J. Roces noted that the government’s infrastructure push will also be a major factor.

“We do expect imports to likely swell on the back of infrastructure spending, and this could lead to a renewed widening of the trade deficit since exports are also expected to contract after posting growth in 2019,” Mr. Roces said.

He added that the possible continued easing from the central bank paired with the “neutral” stance by the US Federal Reserve, “financial flows may be hard-pressed to replicate its 2019 performance, thus a smaller financial account surplus and a wider current account deficit.”

The BSP projects current account to a deficit of $8.4 billion while financial account is forecasted to hit a deficit of $9.8 billion in 2020.

All together, these factors could exert pressure on the BoP this year which may result in a “substantially smaller” surplus of approximately $3 billion compared to last year, Mr. Roces said.

The Philippines ended 2019 with a $7.843-billion BoP surplus.