Extended recession, new lockdowns send 'hot money' leaving in April

MANILA, Philippines — A prolonged economic contraction as a result of fresh lockdowns in the capital and nearby provinces stoked an exodus of short-term foreign funds in April, the Bangko Sentral ng Pilipinas reported Thursday.

What’s new?

Foreign portfolio investments, also known as “hot money” because of their flighty nature, posted a net outflow of $374 million in April. A net outflow means more of these short-term funds left the country against those that entered.

But that was smaller compared to $541 million net outflows recorded in the preceding month. In the first 4 months, hot money recorded a net outflow of $857 million, much smaller compared to $2 billion net outflow a year ago when pandemic restrictions were at their tightest.

Why it matters

Foreign portfolio investments enter and leave markets with ease and are highly sensitive to both local and international developments. If risks emerge, foreign investors tend to immediately pull out their funds from the local market.

What the BSP says

In a statement, the BSP said the developments that likely triggered last month’s hot money flight were “easing inflation, contraction of the country’s gross domestic product in 2020, extension of local quarantine measures, progress of the government’s vaccination program and the continued rise of infections in the country.”

What an analyst says

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said a significant decline in new coronavirus cases in the country could help reverse the months of net outflows.

“If new COVID-19 cases are further reduced after the tight quarantine standards for 1.5 months in NCR Plus, alongside with the arrival and rollout of more COVID-19 vaccines… it may lead to higher investment valuations in the country as well as better net foreign portfolio investments data,” he said in an e-mailed commentary.

Other figures

• Gross inflows in April fell 21% month-on-month to $651 million. BSP data showed about 68.9% of these inflows were invested in publicly listed companies engaged in property, banking, holding firms, food, beverage, tobacco and transportation businesses.
• But these were offset by net outflows amounting to $1 billion, albeit down 24.9% month-on-month. The US, considered a safe haven for investors, received 72.8% of hot money that exited the country.