'Hot money' reverses to net outflow in July on Delta, vaccine woes

MANILA, Philippines — The Delta variant-driven lockdowns and worries about vaccine supply and inflation spooked investors in July, sending short-term foreign funds rushing out of the country during the month.

What’s new

Foreign portfolio investments recorded a net outflow of $340 million last month, the Bangko Sentral ng Pilipinas reported Thursday. A net outflows means more flighty foreign funds left the country against those that came in.

That was a turnaround from $335 million net inflows in June. Year-to-date, foreign portfolio investments yielded a $446 million net outflow, markedly lower compared to $3.8 billion registered a year ago, when the pandemic brought global economies to a standstill.

Why this matters

Foreign portfolio investments could come and go from markets with ease since these funds, popularly known as “hot money”, are extremely sensitive to domestic and global developments.

For this year, the BSP forecasts hot money to hit $5.5 billion, higher than $5.3 billion recorded in 2020.

What the BSP says

In a statement, the central bank noted numerous developments within the country that could have compelled foreign investors to pull out funds such as “reports of vaccinations put on hold by some local government units due to supply constraints; rising COVID-19 cases due to the more contagious Delta variant strain” and Fitch affirming credit ratings but its outlook slid “negative.”

By the figures

• Gross inflows slumped 65.3% month-on-month to $730 million in July. BSP data found that 64.4% of these investments were invested in publicly-listed companies while the remaining went to government securities.
• On the other hand, gross outflows amounted to $1.1 billion, albeit down 39.6% from the preceding month. The US, considered a safe haven for investors, received 63.5% of the total outflows.