‘Hot money’ leaves PHL in 2019

MORE FOREIGN funds left than entered the country last year as global uncertainties took a toll on investor sentiment in the Philippines and other emerging economies.

Foreign portfolio investments (FPIs) — also dubbed as “hot money” due to ease by which these funds enter and leave the economy — saw a net outflow of $1.9 billion last year, according to data from the Bangko Sentral ng Pilipinas (BSP).

This is a turnaround from the $1.204-billion net inflow recorded in 2018 and also missing the BSP’s projection of $8 billion in inflows for the year.

Gross outflows for the year hit $18.502 billion, surpassing the $14.829 billion booked a year ago.

“Majority (or 97.1%) of these outflows represented capital repatriation while the remaining 2.9 percent pertained to remittance of earnings. The United States (US) received 75.1% of total outflows,” the central bank said.

The BSP said a big chunk of net outflows seen last year were from securities in Philippine Stock Exchange-listed shares ($1.7 billion). The rest were from peso government securities ($228 million) and other portfolio instruments ($22 million).

Meanwhile, gross inflows in 2019 totaled $16.602 billion, inching up 3.5% from the $16.033 billion in 2018.

The central bank said 77.7% of FPIs were securities listed in the PSE mainly involved in investments in “holding firms, property companies, banks, food, beverage, and tobacco firms, and retail companies.”

The balance was invested in peso government securities (22.3%) and other portfolio instruments (less than one percent).

“The United Kingdom, the US, Singapore, Malaysia, and Hong Kong were the top five investor countries during the year, with combined share to total of 74.3%,” the central bank said.

For December alone, FPIs also yielded a net outflow $320.96 million, a reversal of the $278.11-million net inflow seen the same month in 2018 but less than the $354.32 million net outflow seen in November 2019.

The month saw gross outflows of $1.435 billion, higher than the $1.302 billion seen in December 2018.

This beat the gross inflows worth $1.114 billion seen during the same month, which also dropped the $1.58 billion seen in the same month in 2018.

The BSP cited some offshore developments last year which affected hot money flows, including the continued trade tensions between Washington and Beijing, the escalating unrest in Hong Kong, the attack

on Saudi Aramco’s oil facilities, and the US House of Representatives’ vote to impeach President Donald J. Trump.

Back home, the year also saw the passage of the rice tariffication law, the midterm elections, easing domestic inflation, the BSP’s move to slash banks’ reserve requirement ratios, and the “strong views” of President Rodrigo R. Duterte about the alleged onerous provisions of the concession agreements of Maynilad Water Services, Inc. and Manila Water Co., Inc., among others.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion called 2019 a “tumultuous year” not only for the country but for emerging economies in general.

“Small-open economies, like the Philippines, were highly vulnerable to dramatic market swings and volatility in advanced or developed markets,” Mr. Asuncion said in an e-mail.

“Although the attractiveness of the Philippines as a preferred investment destination is relatively high among emerging economies, market uncertainty and negative perception about global economic growth prospects does influence the inflows and outflows of investments in emerging countries,” he added.

Amid the 18-month long trade war between the world’s two biggest economies, Mr. Asuncion said there is a tendency for investors to prefer “safe-haven investments in advanced economies.”

Meanwhile, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said the hot money outflows seen in 2019 may be indicative of investor concerns.

“The decline in net portfolio flows in 2019 after an already lean performance in 2018 seems to suggest that investor concerns about the Philippines have gone way beyond the inflation spike episode in late 2018,” Mr. Neri said in a text message.

For his part, Rizal Commercial Banking Corp. (RCBC) Chief

Economist Michael L. Ricafort said some local issues may have offset market optimism from the recent progress in the US-China trade talks.

“[The net outflow was] largely brought about by regulatory uncertainties especially on the country’s biggest water utilities… offsetting the optimism brought about by positive developments on the phase one trade deal between the US and China that led to some improvement in global market risk appetite…,” Mr. Ricafort said in an e-mail.

For 2020, hot money flows may continue to be affected by the progress of the trade talks between US and China, the tensions between the US and Iran, as well as some local developments, according to analysts.

“How the phase one [deal of US and China] pans out and is actually implemented is very crucial to the resulting sentiment toward more investment inflows into emerging markets, specifically the Philippines,” UnionBank’s Mr. Asuncion said.

“Offsetting geopolitical factors include any tensions between the US and Iran…that would lead to some volatility in global crude oil prices, but US-Iran tensions already eased recently with positive signals,” RCBC’s Mr. Ricafort added.

Mr. Ricafort said that among the local factors which could boost hot money inflows are the on-time approval of the country’s 2020 national budget paired with the extension of the validity of part of the 2019 budget, as well as the government’s catch-up spending on infrastructure.

“One offsetting local risk factor is the uncertainties on the timing and extent of the damage brought about by the Taal volcanic eruption,” he added.

The BSP expects a net hot money inflow of $8.2 billion this year, based on projections given last month. —