Hot money turns around in 2018

MORE FLIGHTY FOREIGN FUNDS entered the Philippines in 2018, beating the central bank’s expectation of a net outflow as investor optimism rebounded just before the year ended.

December saw $278.11 million in foreign portfolio investments net inflows, marking the second straight month of net inflows even if it was less than November’s $832.07 million and the year-ago $456.93 million, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday.

These investments are referred to as “hot money,” as these funds enter and leave the country with ease.

Foreigners invested $1.58 billion for the month, but this was offset by $1.302 billion in withdrawn funds.

The December figure brought the full-year total to a $1.204-billion net inflow, marking a turnaround from 2017’s $195.4-million net outflow.

This is the biggest hot money inflow recorded since 2013, which saw $4.225 billion foreign funds retained in the local economy.

Last year’s net inflow even beat the $100-million net outflow expected by the central bank.

“This may be attributed to the large investment in a holding company… accompanied by investors’ optimism over the passage of the first phase of the government’s tax reform program,” the BSP statement read.

San Miguel Corp. raised P39.19 billion (about $744 million) in fresh capital in November through a follow-on offering for its subsidiary, San Miguel Food and Beverage, Inc.

On the other hand, the Tax Reform for Acceleration and Inclusion law took effect Jan. 1, which reduced personal income taxes while raising more revenues from additional levies on fuel, cars and sugar-sweetened drinks, to name a few.

Total inflows reached $16.034 billion this year, partly offset by $14.83 billion in outbound funds.

The largest inflows were recorded in the first quarter at $5.1 billion, which saw bigticket share sales from Petron Corp. at roughly $500 million as well as a $400-million tender offer by port operator International Container Terminal Services, Inc.

About 71.4% of portfolio flows went to shares of listed companies, involving transactions that yielded net outflows worth $1.3 billion.

Foreign investors placed a fifth of their bets on peso-denominated government securities, which yielded a $1.2-billion net inflow. Other peso-denominated debt papers fetched $1.3 billion worth of investments, while peso time deposits received less than $1 million.

The United Kingdom, United States, Singapore, Netherlands and Hong Kong were the five biggest sources of hot money in 2018, while 78.8% of the outflows went to the US as investors regard it as safe haven.

Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc. pointed out that the hot money flows mirrored the movement of the Philippine Stock Exchange, coming from a roughly “10-month rout” for emerging markets.

“Eventually, the stock market recovered from the lows of the year and ended higher,” Mr. Ravelas said in a telephone interview when asked for comment.

Local financial markets took a beating last year as the Philippines reeled from surging inflation, which pushed yields up and sentiment down.

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., also noted that portfolio flows started to improve in November as inflation had “already started to ease from the near-decade high of 6.7%. Interest rates have also eased, with bond yields now on a decline.”

“Philippine economic and credit fundamentals remained solid, as partly attested by the affirmation of the country’s credit ratings as well as economic growth at six-percent levels in 2018 — among the slowest in three years partly due to higher inflation, but still among the highest/fastest in Asia/ASEAN — a sign of resilience,” Mr. Ricafort said.

BDO’s Mr. Ravelas also noted that 2019 will likely turn out to be a better year in terms of attracting more investments, saying: “With the stock market closer to 8,000 and the peso at the low-P52 level, it shows that you’ve seen the risks in 2018.”

“The water in the river is clear, investors are now willing to jump in.”

The BSP forecasts a $200-million net outflow for 2019, according to projections adopted in November last year.