Hot money returns to net inflow in Feb

More foreign portfolio investments flowed into the Philippines in February, snapping two straight months of net outflows, amid the government’s retail Treasury bond offering.

Based on data from the Bangko Sentral ng Pilipinas (BSP), the net inflow of foreign portfolio investments reached $689.27 million in February, a reversal of the $549.28-million net outflow recorded a year ago.

This is also an improvement from the $75.83-million net outflow of hot money in January. The February inflow marked the highest in seven months or since the $961.58 million inflow recorded in July 2023.

Foreign portfolio investments or hot money refer to purely speculative funds that quickly and regularly move within the global financial markets as investors scout for the higher short-term yields available.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said more hot money entered in February amid improving investor sentiment due to better economic data.

This includes the country’s 5.6 percent gross domestic product (GDP) growth last year, which was among the fastest in the region and inflation settling within the two and four percent target for the third straight month in February.

Ricafort also said the five-year retail Treasury bond issuance in February, which raised a record high of P584.86 billion, likely attracted some foreign investors, leading to higher hot money flows.

Broken down, gross inflows of hot money reached $1.5 billion in February, more than double (127 percent) the $679.9 million in the same month last year.

A majority, or 61.4 percent, of total inflows went to peso government securities. The remaining 38.6 percent went to securities listed in the Philippine Stock Exchange, mainly in banks, transportation services, holding companies, property, as well as food, beverage and tobacco.

The United Kingdom, United States, Luxembourg and Hong Kong accounted for the bulk or 89.1 percent of the sources of total inflows.

Meanwhile, gross outflows plunged by 30.1 percent to $859.07 million in February from $1.23 billion a year ago.

The United States received 56.4 percent of the speculative funds that were withdrawn from the Philippines.

Year to date, the Philippines yielded a net inflow of $617.22 million, a reversal of the $374 million outflow booked in the same period last year.

Gross inflows of foreign portfolio investments climbed by 48.1 percent to $2.852 billion, while gross outflows fell by three percent to $2.23 billion.

Last year, the Philippines missed its net inflow target of $1 billion as the country registered a net outflow of speculative funds amounting to $248.84 million. This is also a reversal of the $886.7 million net inflow in 2022.

The BSP expects foreign portfolio investments to recover strongly with a net inflow of $1.3 billion for this year and $1 billion next year.