Hot money outflows reach $206 M in May

Foreign portfolio investments reversed to net outflows in May while total fund flows registered by the central bank fell on concerns over weaker peso and rising inflation rate.

The Bangko Sentral ng Pilipinas (BSP) said that for the month of May, net outflows amounted to $206 million versus a $279 million net inflows in April. It is also more than the $24 million net outflows recorded same time in 2017.

Registered foreign portfolio investments in May was down by 11.9 percent $1.2 billion and also 18.4 percent lower from last year’s $1.48 billion.

According to the BSP, the decline “may be attributed to higher US treasury yields and investor concerns on a weaker peso and rising oil prices which may affect inflation.” Since February this year, the peso has stayed above the P52-level and depreciated further to a fresh 12-year low of P53:$1 while inflation is expected to breach the government target this year due to supply-side factors.

Influenced by both domestic and global events, outflows for the month of May amounted to $1.4 billion. This was 29.3 percent higher compared April’s $1.1 billion and it was “mainly (because of) investors’ reaction to renewed geopolitical tension between the US and China coupled with continuous net foreign selling of PSElisted (Philippine Stock Exchange) securities since February of this year,” explained the BSP.

Compared to same time in 2017, outflows were down six percent from $1.5 billion to $1.42 billion.

“The US continued to be the main destination of outflows, receiving 77.4 percent of total remittances,” said the BSP.

The top five investing countries – as far as hot money flows are concerned – are the United Kingdom, US, Singapore, Malaysia, and Hong Kong. These five fund sources account for 74.8 percent of total registered investments.

The BSP said about 80.2 percent of investments registered in May went into

listed securities such as banks, holding firms, property companies, food, beverage and tobacco firms, and transportation services companies. The rest were invested in peso government securities.

“Net inflows of $74 million was noted for peso government securities while net outflows were recorded for PSE-listed (Philippine Stock Exchange) securities and other peso debt instruments,” said the BSP.

Hot money withdrawals have contributed to a balance of payments (BOP) deficit which as of end-April has widened to almost $1.5 billion. The country’s gross international reserves – lower at $79.60 billion as of end-April – was also affected by outflows from government payments of maturing loans.

In 2017, the BOP deficit stood at $863 million, higher than 2016’s $420 million. As noted by the BSP in several reports, the continued BOP deficit were not only because of a larger merchandise trade gap but also due to the reversal of foreign portfolio investments.