‘Hot money’ swings to outflow in September

United States one-dollar bills are seen in this Nov. 14, 2014 file photo — REUTERS

More short-term foreign investments exited the Philippines in September, after three straight months of net inflows, as uncertainties in the economy dampened investor sentiment.

Data from the Bangko Sentral ng Pilipinas (BSP), released on Thursday, showed transactions on foreign investments registered with the central bank through authorized agent banks (AABs) posted a net outflow of $698 million in September.

The net outflow during the month was a reversal from the $153.46-million net inflow in August. It was also significantly higher than the $367.3-million net outflow in September 2022. These foreign investments are often called “hot money” because they can easily and quickly enter and exit an economy.

Security Bank Corp. Chief Economist Robert Dan J. Roces attributed the hot money net outflows in September to market concerns about rising inflation and expected rate hikes from the BSP.

Headline inflation accelerated to 6.1% in September from 5.3% in August. This marked the 18th straight month that inflation exceeded the central bank’s 2-4% target.

Year to date, inflation averaged 6.6%, higher than 5.1% in the same period a year ago and still above the BSP’s recently revised 5.8% forecast for 2023.

The BSP opted to keep the benchmark interest rates unchanged at 6.25% at its September policy meeting. However, markets were already penciling in more rate hikes from the central bank, amid the BSP chief’s hawkish signals and rising inflationary pressures.

Mr. Roces said investors were also worried about the coming third-quarter gross domestic product data, which will be released on Nov. 9.

A resilient US economy and uncertainties in the foreign exchange market also dampened investor sentiment in September, he added.

BSP data showed gross inflows of hot money went down by 0.5% to $887.6 million in September from $891.9 million a year earlier.

The top five investor economies during the month included the United Kingdom, Singapore, the US, Luxembourg, and Switzerland, which accounted for 88.5% of foreign portfolio investment inflow.

Most of the investments went into Philippine Stock Exchange-listed securities of companies involved in banks, holding firms, property, food, and utilities companies. The rest were invested in peso government securities.

Meanwhile, gross outflows rose by 26.2% to $1.59 billion in September from $1.26 billion a year ago.

“The US remains to be the top destination of outflows, receiving $1 billion (or 63.6%) of total outward remittances,” the BSP said.

For the nine months to September, BSP-registered foreign investments yielded a net outflow of $386.79 million, a reversal from the $221.6-million net inflow in the same period last year.

Mr. Roces said the outlook for short-term investments remains “cautious.”

“Persistent inflationary pressures, along with a slowing economy, are likely to maintain a tight monetary policy, that could make the Philippines less attractive for hot money,” he said.

“Additionally, external risks such as fluctuations in global oil prices and geopolitical tensions could further deter short-term inflows,” he added.

The Philippine central bank expects foreign portfolio investments to yield a net inflow of $2 billion in 2023 and $3 billion in 2024. -– Keisha B. Ta-asan


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