‘Hot money’ inflow seen to surge anew

The inflow of foreign “hot money” to the Philippines is expected to surge again and will continue over the long term once the debt crisis in Europe is resolved.

Inflows of foreign portfolio investments had been robust since the start of the year up until a few weeks ago, when financial markets worldwide were spooked due to the worsening debt woes in the eurozone.

The Bangko Sentral ng Pilipinas believes that the pullout of some foreign portfolio funds from the country in the past few weeks is but a temporary setback, noting that European policymakers are already discussing measures to address the situation and ease the crisis.

Once the crisis is resolved, the BSP said, the Philippines and other emerging economies in Asia may expect foreign portfolio investments to rise again, and this time the robustness of inflows may go on for a long time.

Most investors, particularly portfolio fund owners, now prefer emerging markets, which have already overtaken industrialized economies, as far as driving global growth is concerned, the BSP said.

“The turmoil [in the eurozone] will be temporary. Once it is resolved, emerging markets like the Philippines will attract more inflows [compared with industrialized countries] because of their favorable growth prospects,” BSP Governor Amando Tetangco Jr. said.

According to Tetangco, the Philippines and other emerging markets are now considered more stable and have healthier liquidity positions compared with industrialized countries.

“Emerging markets are the ones already driving the global economy,” Tetangco said.

Even if the crisis in the euro area is solved, he said, emerging markets are expected to continue their lead role in boosting the global economy.

Data from the Bangko Sentral ng Pilipinas showed that net inflows of foreign portfolio investments from January to July hit $3.1 billion, more than triple the $926 million recorded in the same period last year.