$541M in ‘hot money’ exits Philippine markets

By Luz Wendy T. Noble, Reporter

FOREIGN portfolio investments (FPI) yielded a net outflow for a second straight month in March as a surge in coronavirus infections prompted investors to seek safe havens.

Data from the Bangko Sentral ng Pilipinas (BSP) showed “hot money” — dubbed as such due to the ease by which these funds enter or exit an economy — posted a net outflow of $540.97 million in March, 44% smaller than the $961.08 million a year earlier but significantly bigger than the $40.41 million in February.

The March net outflow was also the biggest in 10 months or since the $1.006 billion seen in May 2020.

“Developments during the month included investor reaction to rising inflation and vaccine rollout amid the surge in virus infections and reimposition of restrictions on mobility in the National Capital Region and nearby provinces,” the BSP said in a statement on Thursday.

Stricter lockdown measures were implemented in Metro Manila and four adjacent provinces starting mid-March due to the sharp rise in coronavirus disease 2019 (COVID-19) cases.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said investors moved to safe havens in March as benchmark rates in the United States inched up.

“March saw a stark shift in global sentiment with US Treasury bonds rising quickly and taking the global market yields with it. This shift in sentiment pushed investors to exit from emerging markets, with the Philippines not spared from the exodus,” Mr. Mapa said in an e-mail.

During the month, hot money inflows declined by 13.6% to $824.23 million from a year ago and by 38% from the $1.337 billion in February.

Outflows likewise dropped 28.6% to $1.365 billion from $1.914 billion in March 2020 and by 0.94% from the $1.378 billion the prior month.

The BSP identified the United Kingdom, United States, Luxembourg, Switzerland, and Hong Kong as top sources of investments in March.

The bulk (90.5%) of these investments went to securities listed in the Philippine Stock Exchange (PSE), particularly to banks, property companies, holding firms, food, beverage and tobacco companies and transportation services firms.

However, year-to-date hot money transactions for PSE investments resulted in a net outflow, the BSP said.

Mr. Mapa noted the local market saw net foreign selling for 20 straight trading sessions “and counting.” He said this is a sign investors are more cautious over the Philippine growth outlook.

Analysts said policies to control the coronavirus surge could make or break investor sentiment and affect the course of hot money flows in the coming months.

“Flows would mostly be a function of measures to control the uptick in COVID-19 cases relative to a wider vaccine rollout, and the duration of lockdowns. A rolling lockdown without structural improvements could still affect investor perceptions and thus outflows might still be seen in the next month,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

President Rodrigo R. Duterte on Wednesday evening said Metro Manila and four nearby provinces will remain under a modified enhanced community quarantine (MECQ) for another two weeks to curb the continued rise in COVID-19 infections.

Mr. Mapa is hoping restriction measures would help arrest the surge in coronavirus cases, although he admitted these will have some negative impact on the economy.

The government expects the economy to expand by 6.5% to 7.5% this year, but these will likely be revised next month.

“Should the growth outlook dim further, and we’ve seen a lot of evidence that happening already, we could see a scenario wherein sentiment towards the Philippines sours further, which could lead to a second and even third straight month of hot money outflows,” Mr. Mapa said.

The central bank expects hot money to yield a net inflow of $5.7 billion this year. If realized, this would be a turnaround from the $4.24 billion FPI net outflows in 2020.