‘Hot money’ inflows hit 4-month high in Dec.

FOREIGN investments in local stocks and bonds surged to a four-month high in December on the back of improved sentiment toward the Philippines as 2014 came to a close.

However, for all of  2014, the Philippines posted net outflows of foreign portfolio investments, due largely to record-high divestments seen in January as risk-averse investors fled emerging markets due to volatile global conditions.

“The investment flows reflected investor reaction to the tapering of the quantitative easing program of the United States, which started in January 2014,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.

Data showed that for December alone, foreign portfolio investments or “hot money” inflows improved to $397.02 million from $369.92 million in November.

A net outflow of $310.21 million was recorded for all of 2014 despite the improvement in December. This was still a stark improvement from the net outflow of $1.84 billion that was posted in January 2014.

Gross outflows last year reached $22.1 billion, lower than the $24.2 billion recorded in 2013.
The bulk of the outflows came from capital repatriation from publicly-listed shares amounting to $13.7 billion, government securities worth $5.6 billion, and  $241 million from peso time deposits.

Gross inflows reached $21.8 billion, lower than 2013’s $28.404 billion—the highest since 1999.

The BSP pointed out that if the first quarter of 2014 was excluded, during which net outflows reached $2.3 billion, all succeeding quarters of the year yielded net inflows. This was the reason for the substantial reduction of net outflows by the end of the year.

Portfolio investments are referred to as “hot money” due to the speed at which they enter and leave local markets. They come in the form of investments in stocks, government and private bonds, and deposit certificates sold by banks.
Hot money flows are seen as an indicator of how investors view the Philippines as an investment destination.

In the meantime, foreign direct investments (FDI), which fund capital investments by companies in, for instance, the construction of new factories or purchase of new equipment, are not subject to changing winds of the market. As such, FDIs are seen as more reliable in determining the attractiveness of a country as an investment destination.

Latest data showed that as of the end of October, FDIs rose to $5.3 billion, already more than the country has ever booked in any single year.

The BSP said factors affecting investment flows in the Philippines in 2014 included the country’s sound macroeconomic fundamentals, and credit rating upgrades by Standard & Poor’s and Moody’s Investor Service.

Top sources of hot money were the United Kingdom, the United States, Singapore, Malaysia, and the Luxemburg. Together, the five countries had a share of 77.2 percent of the total during the last three months of 2014.