Rising US yields drew ‘hot money’ away from PH in ‘17, says BSP

The strong foreign portfolio investment inflows of 2016 swung to outflows last year, as investors in stocks and bonds were attracted by rising returns overseas and put off by weak prospects of local mining stocks, according to the Bangko Sentral ng Pilipinas.

In a press statement, the BSP said that portfolio investments — also called “hot money” due to their tendency to move rapidly in an out of markets depending on short term developments — ended 2017 with $205 million in net outflows.

This marked a sharp reversal from the net inflows of $404 million recorded in the previous year.

The central bank reassured that the pace of outflows had slowed toward the end of 2017 amid favorable fiscal developments.

“While net outflows were noted starting in the first quarter of the year ($568 million) attributable to international and domestic developments (such as the interest rate increases in the US, and the closure order for several mining companies in the country), the figure has subsequently declined as investors reacted positively to the various developments in the country, including the approval of the first phase of the tax reform program of the government,” it said.

According to the latest data, registered foreign portfolio investments for 2017 aggregated $16.1 billion, 8.9 percent lower than the $17.6 billion level in the previous year.

On a monthly basis, the lowest gross inflows were recorded in August ($936 million) while the peak was noted in June ($2.0 billion). On a quarterly basis, the largest inflows were noted in the second quarter at $4.8 billion, representing 30 percent of the total for the year.

“This may be attributed to positive investor sentiment arising from the World Bank’s view that the Philippines will continue to be a top performer in the region, and the conflict resolution in Marawi City,” the central bank said. “These were further supported by accelerated net foreign buying as well as the approval by Congress of the first phase of the tax reform package.”

Outflows for the year amounting to $16.3 billion were, however, much lower compared to $17.2 billion in 2016. About 96.4 percent of the outflows represented capital repatriation, with the remaining 3.6 percent pertaining to earnings.

Portfolio investments registered during the year were mainly in Philippine Stock Exchange-listed securities (81.9 percent) and peso-denominated government securities (17.5 percent).

Net inflows were noted for other peso debt instruments and unit investment trust funds, while net outflows were recorded for PSE-listed securities, peso government securities, and peso time deposits.

The United Kingdom, the US, Singapore, Luxembourg, and Malaysia were the top five investor countries during the year, with combined share to total of 74.8 percent. The US continued to be the main destination of outflows, receiving 80.2 percent of total.

Registration of inward foreign investments with the BSP is optional under the liberalized rules on foreign exchange transactions.

The issuance of a BSP registration document entitles the investor or his representative to buy foreign exchange from authorized agent banks and/or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of earnings that accrue on the registered investment.

Without this, the foreign investor can still repatriate capital and remit earnings on his investment but the foreign exchange will have to be sourced outside the banking system. /je