More hot money flees in October

MANILA, Philippines — Foreign investors continued to pull out funds from the Philippines, albeit at a slower pace, resulting in a net outflow of foreign portfolio investments or speculative funds for the second straight month in October due to elevated inflation as well as the full-blown trade war between the US and China.

Data released by the Bangko Sentral ng Pilipinas (BSP) late Friday showed foreign portfolio investment transactions yielded a $67.83 million net outflow in October.

 The net outflow was lower than the $563.42 million recorded in October last year and the $440.3 million booked last August.

“The deficit may be attributed to investors’ reaction to the country’s September inflation data coupled with the continuing trade tensions between the US and China,” the central bank said in a statement.

Foreign portfolio investments are also called hot or speculative money because of its flighty nature.

Investors continued to pull out of emerging markets including the Philippines as the US Federal Reserve continued to raise interest rates.  Their exit was also due to the trade dispute between the US and China as well as domestic concerns including rising inflation and the depreciating peso.

Inflation steadied at 6.7 percent in October, unchanged from September but averaged 5.1 percent in the first 10 months of the year and exceeding the BSP’s two to four percent target.

As a result, the BSP’s Monetary Board lifted interest rates by 175 basis points in five consecutive rate-setting meetings since May this year to rein in inflationary pressures and boost the weak peso.

Just last Thursday, the central bank raised benchmark rates by another 25 basis points as a proactive action to keep inflation expectations well anchored. It raised its inflation assumptions for 2018 to 5.3 instead of 5.2 percent due to the fare and wage hikes.

Inflows fell 31.2 percent to $952.6 million in October.  However, it was 28.2 percent higher than the $743.31 million recorded in September.

About 68.8 percent of the infusion primarily from the UK, US, Singapore, Norway, and Luxemburg went to the Philippine Stock Exchange (PSE) particularly holding firms, banks, food beverage and tobacco, property developers as well as telecom providers.

Investments in PSE-listed securities yielded a net outflow of $301 million last month.

On the other hand, 31.2 percent of the total inflows went to peso government securities and peso time deposits that yielded a combined net inflow of $234 million, reversing the net outflow of $89 million in September.

Data showed outflows plunged 47.6 percent to $1.02 billion in October. The amount was also 13.8 percent lower than the September figure.

 Despite the continued outflows in October, the BSP said the Philippines managed to register a net inflow of $93.89 million from January to October, a complete reversal of the $812.17 million net outflow recorded in the same period last year.

Inflows slipped 7.6 percent to $12.41 billion in the first 10 months while outflows registered a 13.5 percent decline to $12.32 billion.

The BSP expects a net outflow of foreign portfolio investments amounting to $900 million this year. The country booked a net outflow of $205.05 million last year, reversing the net inflow of $404.43 million in 2016 as more capital were repatriated from the country due to the series of rate hikes in the US.