More hot money enters Philippines in July

MANILA, Philippines — More speculative funds flowed into the Philippines than what came out last July compared to a year ago, data released by the Bangko Sentral ng Pilipinas showed.

Based on BSP data, foreign investments registered through authorized agent banks registered a net inflow of $1.38 billion in July, rising by 43.8 percent from the $961.6 million net inflow in the same period last year.

The July figure was also a reversal from the $27.26 million net outflow recorded in June.

Foreign investments registered by the BSP through authorized agent banks are also known as hot money or speculative funds since these flow regularly between financial markets as investors attempt to ensure they get the highest short-term interest rates possible.

Gross inflows coming from the UK, the US, Singapore, Luxembourg and Norway jumped by 53.8 percent to $2.43 billion in July from $1.58 billion in the same month last year.

Data showed the majority of the inflows at 71.3 percent were invested in peso government securities.

Around 28.7 percent went to securities listed in the Philippine Stock Exchange, particularly in banks, holding firms, property, transport services as well as food, beverage and tobacco.

Withdrawals of foreign portfolio investments also surged by 70.6 percent to $1.05 billion in July from $614.9 million in the same month last year.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said positive market sentiment in July was driven by the reduction in tariff rates on imported rice.

Lower bond yields in the Philippines and in the US amid dovish signals from the BSP and the US Federal Reserve also led to large net foreign buying in peso government securities, he said.

In the first half of the year, the Philippines logged a net inflow amounting to $625.15 million, reversing the $445.88 million net outflow recorded in the same period last year.

For the seven-month period, gross inflows slipped by almost three percent to $7.82 billion compared to $8.06 billion in the same period last year.

Likewise, gross outflows of speculative funds declined by 15.4 percent to $7.19 billion from $8.5 billion.

“For the coming months, hot money data could improve after better-than-expected economic growth and inflation,” Ricafort said.

He said that lower inflation would support local policy rate cuts, which would likely boost market sentiment and support better hot money inflows moving forward.

Last year, the Philippines missed its net inflow target of $1 billion as the net outflow of speculative funds amounted to $248.84 million. This was also a reversal from the $886.7 million net inflow in 2022.

The central bank expects foreign portfolio investments bouncing back strongly with a net inflow of $3.1 billion for 2024 and $2.2 billion for 2025.