June ‘hot money’ outflows accelerate as bears dominate stocks

Foreign capital lodged in short-term investments flowed out of the Philippines for a second consecutive month in June—a phenomenon attributed by the Bangko Sentral ng Pilipinas to rising returns overseas and investors’ worries about high domestic inflation and the weakening currency.

In a statement, the central bank said $516 million worth of registered foreign portfolio investments left the country last month, reversing the $73 million in net inflows reported during the same period last year.

The June net outflows were also more than double the amount recorded in May of $206 million.

“This may be attributed to the US Federal Reserve’s decision to increase interest rates and investor concerns on inflation and the further weakening of the Philippine peso,” the BSP said in a statement.

Overall, however, portfolio flows in the first half of 2018 were still positive with $306 million in net inflows compared to net outflows of $467.8 million in the same period last year.

Total inflows in June alone amounted to $911 million, down by 24.9 percent and 54.8 percent from levels recorded in the previous month and a year ago, respectively.

The United States, United Kingdom, Singapore, Hong Kong and Switzerland were the top five investor countries for the month, with combined share total of 82.5 percent.

About 92 percent of investments registered during the month went to Philippine Stock Exchange-listed securities (pertaining mainly to holding firms, property, banks, food, beverage and tobacco firms and utilities companies), while the balance went to peso-denominated government securities.

Transactions for PSE-listed securities, peso bonds and other debt instruments yielded net outflows of $346 million, $170 million and less than $1 million, respectively.

“Outflows for the month of $1.4 billion closely reflected last month’s level as investors reacted to the continuing trade war between the United States and China coupled with sustained net foreign selling of PSE-listed securities since February of this year,” the central bank said.

Year-on-year, outflows declined by 26.6 percent from $1.9 billion in June 2017. The United States continued to be the main destination of outflows, receiving 82.7 percent of total remittances to date.

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 or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of earnings that accrue on the registered investment. Without such registration, 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.