'Hot money' left at slower pace in 2021, but still missed BSP's forecast

MANILA, Philippines — Short-term foreign funds continued to leave the Philippines in 2021, albeit at a slower pace as economic recovery starts to ease investors' pandemic fears. But it was not enough to hit the Bangko Sentral ng Pilipinas’ forecast for last year.

Data from the BSP released on Monday showed foreign portfolio investments recorded a net outflow of $574 million in 2021, 86.5% smaller compared with the net outflow recorded in 2020.

Foreign portfolio investments are also called “hot money” because they enter and leave markets with ease, unlike firmer commitments like foreign direct investments. These types of funds are sensitive to domestic and global developments. 

A net outflow means more foreign funds exited the country as opposed to those that came in, while a net inflow occurs when the reverse happens.

The 2021 figure failed to meet the BSP’s watered-down expectations, which had pegged a net inflow of $1.5 billion for last year. Even in the final month of 2021, the Philippines still posted a net outflow of $4.4 million, albeit dramatically lower compared with $523.86 million net outflow posted a year ago.

For most of 2021, global developments such as talks about the US Federal Reserve's taper and record-high inflation rates globally jilted investors everywhere.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., expects hot money to continue to enter the country even in the early months of 2022, despite the Omicron variant’s surge globally.

"Increased fund-raising/investment banking activities could have partly offset the relatively slight net outflow in foreign portfolio investments during the month and could still continue in early 2022 in view of the increased upcoming investment banking deals in the pipeline," Ricafort said in an e-mailed commentary. 

Broken down, gross inflows in 2021 hit $13.62 billion, expanding 16.6% year-on-year. The majority of these bets were placed in publicly-listed companies while the rest went to peso-denominated government securities like Treasury bonds and bills.

Meanwhile, $14.19 billion worth of flighty foreign funds left the country last year, down 10.8% compared with 2020’s outflows.

"Offsetting risk factors in January 2022 and in the coming months include the more hawkish signals from the Federal Reserve in terms of faster pace of tapering Fed bond purchases...," Ricafort added.