More hot money exits Phl in June

More speculative funds continued to exit the Philippines than what came in as foreign portfolio investments recorded a net outflow for the second straight month in June, according to the Bangko Sentral ng Pilipinas (BSP).

Foreign investments registered a net outflow of $342.19 million in June, the highest in 14 months and a reversal of the $334.51 million net inflow recorded in the same month last year.

This was the biggest net outflow in more than a year or since the $373.95 million recorded in April last year.

Despite the net outflows for two consecutive months, the BSP said the country still managed to book a net inflow of hot money amounting to $718.52 million in the first half, reversing the $160.88 million net outflow recorded in the same period last year.

Foreign investments registered by the BSP through authorized agent banks are also known as hot money or speculative funds as these flow regularly between financial markets because investors want to ensure they get the highest short-term interest rates possible.

Gross inflows coming from the United Kingdom, the US, Singapore, Hong Kong and Switzerland plunged by 50.7 percent to $1.04 billion in June from $2.1 billion in the same month last year.

The bulk or 77.4 percent of the inflows were invested in securities listed on the Philippine Stock Exchange (PSE), particularly in property, holding firms, banks, information technology as well as food, beverage and tobacco.

The balance of 22.6 percent went to investments in peso government securities.

On the other hand, withdrawals of foreign portfolio investments declined by 22.1 percent to $1.38 billion in June from $1.77 billion in the same month last year.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the net outflow in June was largely brought about by increased volatility and some sell-off in the US and global financial markets due to the hawkish US Federal Reserve that continues to deliver huge rate hikes in an effort to bring down US inflation.

“For the coming months, if the Russia-Ukraine conflict drags on, global oil and other commodity prices would linger at multi-decade highs, leading to elevated inflation, more aggressive Fed rate hikes that could lead to risks of economic slowdown or even recession in the US, which is the world’s biggest economy, thereby could still lead to some volatility in the global and local financial markets,” Ricafort said.

Gross inflows from January to June slipped by three percent to $7.18 billion compared to the $7.4 billion recorded in the same period last year, while outflows declined by 14.5 percent to $6.46 billion from $7.56 billion.

Ricafort said the steady decline in global oil and wheat prices and stable US Treasuries could lead to some improvement in the foreign portfolio investments data amid the improving global and local financial markets.

Last year, the Philippines missed its net inflow target of $1.5 billion as the country registered a net outflow of speculative funds amounting to $574.46 million, 86.4 percent lower than the $4.24 billion net outflow recorded at the height of the pandemic in 2020.

For 2022, the BSP expects foreign portfolio investments bouncing back strongly with a net inflow of $4 billion and $6.7 billion for next year.