BSP sees $1.3-B ‘hot money’ outflow next year

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) sees more foreign portfolio investments or “hot money” being pulled out from the Philippines next year due to uncertainties in the global financial market brought about by the economic slowdown in China and the normalization of interest rates in the US.

BSP deputy governor Diwa Guinigundo said the central bank expects a net outflow of foreign portfolio investments amounting to $1.3 billion next year from a net inflow of $200 million this year.

“This is again something that we do expect because of the continued play in the financial markets because of the uncertainties surrounding China and other emerging markets as well as the new issue as to when is the next move of the US Fed and how much,” he said.

Foreign portfolio investments are also known as ”hot money” since these are speculative capital flows that move very quickly in and out of markets.

The US Federal Reserve delivered its first 25 basis points interest rate hike in almost a decade in the middle of December.

Latest data from the central bank showed the country’s foreign portfolio investments yielded a net outflow of $429.18 million in the first 11 months of the year or 39.3 percent lower compared to the net outflow of $707.22 million registered in the same period last year.

Inflows decreased 6.1 percent to $18.69 billion from January to November versus $19.9 billion in the same period last year while outflows likewise declined 7.2 percent to $19.12 billion from $20.61 billion.

For the month of November alone, the Philippines booked a net outflow of foreign portfolio investments amounting to $68.79 million in November after booking a net inflow of $27.84 million in October.

Last month’s net outflow was a complete reversal of the net inflow of $369.92 million in November last year as investors reacted to weak third quarter corporate earnings reports, renewed concerns on the prospect of interest rate hike in the US by December, and the thin volume of transactions brought about by trading holidays.

Trading at the Philippine Stock Exchange (PSE) and the Philippine Dealing & Exchange Corp. (PDEx) were suspended after Malacañang declared Nov. 18 and 19 as holidays as the country hosted the Asia-Pacific Economic Cooperation (Apec) Leaders’ Summit.

The BSP said 78.1 percent of investments registered in November were in investments in PSE-listed securities primarily in holding firms, banks, property companies, food, beverage and tobacco firms, and utility companies.

On the other hand, the central bank said 21.5 percent went to peso-denominated government securities, while the rest of the investments were in other peso debt instruments.

The BSP sees the country’s foreign direct investment (FDI) inflows rising to $6.3 billion next year from the projected $6 billion this year amid the country’s strong macroeconomic fundamentals and the implementation of much needed infrastructure projects under the public private partnership (PPP) scheme.

This would translate to a stronger balance of payments (BOP) position that is expected to post a surplus of $2.2 billion next year from $2 billion this year due to sustained leads from the exports of goods and services, cash remittances from Filipinos abroad, and higher FDI inflows.

While the global economic outlook in 2016 is expected to improve slightly, Guinigundo said uncertainty and caution still remain.

Nevertheless, he added the Philippine economy is expected to exhibit continued resilience on the back of strong domestic economic activities.

“In other words we continue to see these uncertainties in the global financial markets and these are reflected in the BOP. But given such things and more challenging external environment for the BOP to maintain a $2 billion surplus for 2015 and $2.2 billion for 2016 is illustrative of a resilient economy,” he said.