‘Hot money’ flowed out in March

Bangko Sentral ng Pilipinas (BSP). RYAN LEAGOGO/INQUIRER.net FILE PHOTO

Foreign investments in local financial instruments dipped in March due to profit-taking, driving money back to the United States where yields started to improve.

According to data released by the Bangko Sentral ng Pilipinas (BSP) Thursday, there was a reversal in the flow of foreign cash following February’s record numbers, reflecting recent swings in investor sentiment.

“The United States continued to be the main destination of outflows,” the BSP said in a statement.

In March, net outflows of $22 million in foreign portfolio investments were recorded, as opposed to February’s $1.2 billion in net inflows.

Foreign portfolio investments, referred to as “hot money,” are placements in local stocks, bonds and deposit certificates. These investments indicate how attractive the country is to fund managers, and reflect the health of the domestic economy.

These portfolio investments are considered short-term bets—hence the nickname “hot money”—because these placements may be quickly made or pulled out.

Foreign direct investments, which usually take the form of capital expenditures for new factories and equipment, are seen as a more reliable indicator.

A net outflow meant investments that were pulled out during the month exceeded the funds that were poured in. Gross inflows in March declined by nearly a fifth to $2.08 billion, with money going mostly to listed shares. In particular, the main beneficiaries were holding companies, property developers, banks, food, beverage, tobacco firms and telcos.

Divestments reached $2.1 billion, more than offsetting the inflows.

The United States, the United Kingdom, Singapore, Luxembourg and Hong Kong were the top five sources of investments, accounting for four of every five dollars that entered the country. A similar proportion, or 78.5 percent, of investments that exited the country went to the US.

Early last year, the country saw massive amounts of money leave the country as foreign investors divested holdings, following the US Federal Reserve’s decision to reduce its monetary stimulus for the American economy. As a result, the Philippines incurred $310.21 million in net outflows in 2014.