High stocks, bond yields cause surge in ‘hot money’ inflows
Short-term financial investments into the country surged in January, with fund managers attracted by the prospects of companies listed on the Philippine Stock Exchange (PSE) and higher yields on peso-denominated debt securities—with both asset classes benefiting from the bullish sentiment on the local currency.
In a statement, the Bangko Sentral ng Pilipinas said that registered investments for January 2019 amounted to $2.1 billion, increasing by 30.5 percent compared to the $1.6 billion inflows in December 2018.
Similarly, inflows reflected a 27-percent growth relative to levels recorded a year ago of $1.6 billion.
“About 71.6 percent of investments registered during the month were in PSE-listed securities, pertaining mainly to holding firms, property companies, banks, food, beverage and tobacco companies, and retail companies,” the central bank said.
The 28.4-percent balance went to peso government securities and peso time deposits, whose yields had risen after the BSP raised key interest rates by 175 basis points in 2018 as a means of fighting high inflation.
The United Kingdom, the United States, Singapore, Norway and Hong Kong were the top five investor countries for the month, with combined share to total at 74.7 percent.
Outflows for the month ($1.299 billion) were lower compared to figures recorded for December 2018 ($1.302 billion or by 0.2 percent) and January 2018 ($1.5 billion or by 11.1 percent). The United States continued to be the main destination of outflows, receiving 78.4 percent of total remittances.
On the overall, transactions for the month yielded net inflows of $763 million, an improvement from the $278 million and $162 million net inflows recorded last month and for January 2018, respectively.
“This may be attributed to investor optimism arising from the easing trade tension between the US and China and the decline in inflation alongside the increase in net foreign buying in PSE-listed shares in January 2019,” the BSP said.
Net inflows were noted for the following investment instruments: PSE-listed securities ($506 million); peso bonds ($256 million); and peso time deposits (less than $1 million), while transactions in other peso debt instruments resulted in net outflows of less than $1 million.
Registration of inward foreign investments with the central bank is optional under the liberalized rules on foreign exchange transactions. The issuance of a registration document entitles the investor to buy foreign exchange from authorized agent banks for repatriation of capital and remittance of earnings. Without this 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.
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