$4.2B in ‘hot money’ fled PH financial markets in 2020

Short term overseas investors took their money out of Philippine markets last year as the coronavirus pandemic forced the local economy into its steepest contraction in recorded history, data from the central bank showed.

In a statement, the Bangko Sentral ng Pilipinas said registered foreign portfolio investments for 2020 yielded net outflows of $4.2 billion as a result of the $15.9 billion in outflows and $11.7 billion in inflows for the year.

The net outflows last year represented a 123-percent increase from the $1.9 billion that left local financial markets in 2019.

“Developments for the year included the ongoing impact of the COVID-19 pandemic to the global economy and financial system, along with international and domestic developments throughout the year such as geopolitical tensions, certain corporate governance issues and extended community quarantine measures in various regions in the country,” the central bank said.

These repatriation of funds were attributed to foreign investors pulling their so-called hot money out of Philippine Stock Exchange-listed (PSE) shares to the tune of $3.3 billion; peso-denominated government securities worth the equivalent of $931 million, and other portfolio instruments totaling $22 million.

According to the central bank, foreign portfolio investments registered with it last year totaled $11.7 billion, reflecting a 29.7-percent or $4.9 billion decline from $16.6 billion in 2019.

These portfolio funds were predominantly investments in PSE-listed securities, accounting for 80.5 percent of the total, mostly in property companies, holding firms, banks, food, beverage and tobacco firms and information technology companies.

The balance of 19.5 percent was invested in peso-denominated government bills and bonds.

The United Kingdom, Singapore, United States, Luxembourg and Hong Kong were the top five investor countries during the year, with combined share to total of 78.2 percent.

Outflows recorded by the regulator of $15.9 billion in 2020 were also lower compared to previous year’s $18.5 billion, representing a decline of 14 percent or $2.6 billion. The bulk of these outflows—96.9 percent—represented capital repatriation while the remaining 3.1 percent pertained to remittance of earnings.

The United States continued to be the main destination of outflows with 63.8 percent of total.

The central bank said the registration of inward foreign investments was optional under the liberalized rules on foreign exchange transactions. Registering inward portfolio investments entitle the investor to buy foreign exchange from the formal banking system for repatriation of capital and remittance of earnings that accrue on the registered investment. Without this, a 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.