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‘Hot money’ outflows hit 17-month high

“Hot money” outflows hit a 17-month high in September, the central bank said. — REUTERS

THE PHILIPPINES saw the biggest net outflow of short-term foreign investments in 17 months in September, reflecting the impact of the US Federal Reserve’s aggressive monetary tightening.

Data from the Bangko Sentral ng Pilipinas (BSP) showed transactions on foreign investments registered with the central bank through authorized agent banks (AABs) posted a net outflow of $367 million in September, the biggest net outflow since the $374 million in April 2021.

September marked the fifth straight month of net outflow of foreign investments.

The net outflow during the month was significantly higher than the $86.29-million net outflow in August, and the $24.6- million net outflow in September 2021.

These foreign investments are also known as “hot money” — called as such due to the ease by which these funds enter and exit an economy.

“Hot money continues to flow out of the country as investors took on risk off attitudes against emerging markets like the Philippines,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

“Relatively high interest rates in advanced economies and perception that economies such as the US are ‘safer’ were behind the outflows,” she said.

The US Federal Reserve has raised rates by 300 basis points (bps) since March, including its three straight 75-bp increases in June, July, and September, as it sought to cool red-hot inflation.

The BSP started its tightening cycle in May. So far, the Monetary Board raised the benchmark policy rate to 225 bps this year, including its surprise 75-bp hike in July and back-to-back 50-bp increases in August and September. Its next meeting is on Nov. 17.

BSP data showed gross inflows of hot money fell by 25% to $891.9 million in September from $1.19 billion a year earlier.

The top five investor economies during the month included Singapore, the United Kingdom, United States, Luxembourg, and British Virgin Islands which accounted for 79.9% of foreign portfolio investment inflow.

Most of the investments went into Philippine Stock Exchange-listed securities of companies involved in energy, property, banks, and food. The rest were invested in peso government securities.

Meanwhile, gross outflows rose by 3.8% to $1.26 billion in September from $1.21 billion a year ago.

For the nine months to September, BSP-registered foreign investments yielded a net inflow of $222 million, a turnaround from the $495-million net outflows in the same period last year.

“Aside from this, in periods of high interest rates, stock markets generally go down,” Ms. Velasquez said. “Hence, we also see some outflow as the local bourse continues to weaken.”

Asian Institute of Management economist John Paolo R. Rivera said high inflation and the weak peso may have been factors why investors fled in September.

“The peso is weak… Inflation is also a consideration. Cost of doing business is relatively higher now with a weaker purchasing power for consumers. Hot money will improve as soon as economic fundamentals improve

The local unit closed at P58.625 against the US dollar on Sept. 30. Month on month, the peso has weakened by P2.48 or 4.23% from its Aug. 31 close of P56.145.

Headline inflation rose to 6.9% in September, marking the sixth straight month that inflation breached the central bank’s 2-4% target for the year.

“Moving forward, we expect continuous outflows until early next year as the Fed continues its monetary tightening path,” Ms. Velasquez said.

The US central bank is widely expected to deliver another 75-bp rate hike at its Nov. 1-2 policy meeting.

The Philippine central bank expects hot money to yield a net inflow of $4.5 billion in 2022. — Keisha B. Ta-asan