$247 million hot money exits Philippines in 2023

MANILA, Philippines — A total of $247.3 million worth of speculative funds exited the Philippines last year, reversing the $886.7 million net inflow recorded in 2022, according to the Bangko Sentral ng Pilipinas (BSP).

Latest data from the central bank showed the gross inflow of foreign investments registered with the central bank through authorized agent banks inched up by 4.4 percent to $12.88 billion from $12.34 billion.

More than half or 57.3 percent of the total inflow went to securities listed on the Philippine Stock Exchange (PSE) particularly banks; property; holding firms; food, beverage and tobacco; and transportation services.

The remaining 42.7 percent were invested in peso government securities and other investments.

About 83.5 percent of the total inflow last year came from the United Kingdom, the US, Singapore, Luxembourg, and Japan.

The foreign portfolio investments are also known as hot money or speculative funds, as these flow regularly between financial markets as investors attempt to ensure they get the highest short-term interest rates possible.

On the other hand, gross outflows of hot money went up by 14.6 percent to $13.13 billion in 2023 from $11.46 billion in 2022.

“On a per instrument level, transactions in PSE-listed shares resulted in net outflows of $1 billion, which is a reversal from the $179 million net inflows last year, while those for peso government securities recorded net inflows of $781 million, higher compared to last year’s $694 million net inflows,” the BSP said.

The US, the central bank added, remained the top destination of outflows as it accounted for 63.6 percent of the total amount pulled out from the Philippines.

Security Bank chief economist Robert Dan Roces said the net outflow of speculative funds could be traced to global factors, including rising global interest rates where central banks worldwide, particularly the US Federal Reserve, aggressively raised interest rates to combat inflation.

“This made holding assets in emerging markets like the Philippines less attractive to foreign investors, who could get higher returns in developed markets. Slowing global economic growth is also a factor, as fears of a global recession, coupled with supply chain disruptions and slowing growth in China, further deterred investments in emerging markets,” Roces said.

He also cited the emergent geopolitical concerns which dampened investor risk appetite.

“ Domestically, we had elevated inflation as the main challenge. Add to this the widening current account deficit which ballooned in 2023, reflecting strong import demand against weaker export earnings. This raised concerns about the country’s external balance and potential currency depreciation, leading to some capital flight,” Roces added.

For December alone, the Philippines booked a net outflow of $205.18 million, reversing the four month-high net inflow of $672.86 million in November.

The gross inflow of speculative funds slipped by 2.5 percent to $1.06 billion from $1.09 billion.

During the month, about 52.9 percent or $564 million of registered investments were in PSE-listed securities, particularly banks; holding firms; property; transportation services; and food, beverage and tobacco.

About 47.1 percent where in peso government securities and in other instruments.

Investments in December mostly came from the United Kingdom, Singapore, the US, Luxembourg, and Hong Kong with combined share of 83.3 percent.

On the other hand, gross outflow surged by 27.1 percent to $1.27 billion from $999.12 million, of which 53.3 percent went to the US.

The BSP further lowered its net hot money inflow projection to $1 billion to $2 billion for 2023 and to $1.7 billion from $3 billion for this year.

“While continued outflows are possible in the first half of 2024, a return to net inflows could occur if the global economic environment stabilizes and interest rate hikes slow down, and domestic inflation is brought under control and the current account deficit narrows,” Roces said.