Slowdown in ‘hot money’ inflow seen

HOT MONEY SLOWDOWN The Bangko Sentral ng Pilipinas predicts a sudden reversal in the surge of foreign portfolio investments into the Philippines due to the unfavorable outlook for the global economy.

The Bangko Sentral ng Pilipinas said a sudden reversal of the ongoing surge in foreign portfolio investments into the country and other Asean nations was likely considering the unfavorable outlook for the global economy, which could dampen investment appetite of fund owners.

BSP Deputy Governor Diwa Guinigundo said there was basis for projections by financial market players that even emerging markets like the Philippines could eventually experience capital flight.

“Yes, it is possible that a reversal [of the strong inflow of portfolio funds] could happen,” Guinigundo told reporters.

The projections resulted from the prolonged problems confronting the United States and several countries form Europe.

Financial market analysts said that in the early stages of the economic and fiscal problems of the Western economies, foreign portfolio investors understandably shifted funds to emerging markets where interest rates were not only higher but, more importantly, economies were more stable.

However, they also said that with the prolonged unfavorable economic conditions in the West, the problems were somehow spilling over to emerging markets, which partly depended on the industrialized countries for their export income and for the remittances sent by migrant workers who were based mostly in the West.

The anemic consumption in the industrialized world has actually pulled down export earnings of the Philippines this year.

In a situation where prospects for the global economy became uncertain, analysts said, portfolio fund owners could be forced to liquefy their assets and hold on to cash, thus leading to flight of capital away from emerging markets, which have been seeing a surge in inflows of short-term funds or “hot money.”