Hot money reverses to net inflow in October

MORE foreign capital entered than left the country in October to yield a net inflow after two months of outflows, the central bank reported on Friday.

Foreign portfolio investments — also known as “hot money” because of the ease by which these funds enter and leave the economy — saw a net inflow of $104.53 million last month, reversing the $231.71 million net outflow in September as well as the net $67.83 million that left the country in October last year, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

This trimmed the ten-month tally to a net outflow of $1.225 billion, a turnaround from last year’s $93.89-million net inflow.

The central bank sees $4 billion in hot money net inflows this year.

Outflows in October hit $1.148 billion, going beyond the $1.02 billion seen last year.

This was surpassed by gross inflows which amounted to $1.253 billion, which improved from the $952.6 million which poured into the country in October 2018 but was lower than the $1.301 billion which entered the country in September.

The bulk or 81.9% of hot money flows went into securities listed in the Philippine Stock Exchange, which were mainly channeled into holding firms, banks, property companies, retail companies, as well as food, beverage and tobacco firms.

“The United Kingdom, the United States, Singapore, Luxembourg, and Malaysia were the top five investor countries for the month, with combined share to total at 73.9%,” the BSP said in a statement.

The central bank pointed towards domestic and international developments for the month including “progress on the US and China trade discussions; initial public offerings by firms in the industrial and services sectors; the BSP’s decision to reduce the reserve requirement ratio for universal/commercial and thrift banks by 100 basis points; and further slowdown of headline inflation to 0.8% in October from 0.9% in September” as factors that affected October’s hot money flows.

Sought for comment, analysts attributed the inflows to the US-China trade deals as well as the the renewed interest in emerging markets.

“Most currencies in EM (emerging markets) Asia rallied versus the US dollar in Oct[ober] driven by positive headlines on US-China trade negotiations. Foreign portfolio flows in local bond and equity markets also underpinned their notable gains. Hot money was also the catalyst for PHP’s outperformance making local rice producers even compete harder versus already cheap imports,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a text message.

“A major driver was the potential trade agreement or “Phase 1” between the US and China that has previously roiled global markets into much uncertainty. Aside from this, the domestic developments have underpinned renewed interest in emerging markets such as declining inflation and easing interest rates in the Philippines,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a text message.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said: “net foreign investment inflow…[was] due to improved global market risk appetite after resumption of US-China trade talks, no-deal Brexit averted three-month Brexit extension. Widely expected [US] Fed[eral Reserve] cut also improve global market sentiment.” — Luz Wendy T. Noble