Hot money inflows slowed down in 2011—BSP

MANILA, Philippines—The net inflow of foreign “hot money” into the Philippines dropped in 2011 from the previous year’s, as the uncertain outlook on the global economy prompted some investors to shy away from perceivably risky assets, such as those from emerging markets.

The Bangko Sentral ng Pilipinas said the prolonged debt crisis in the eurozone and the slow recovery of the US economy from its recession in 2009 were the main reasons for the drop in the net inflow of foreign investments in the country’s stocks, bonds and other securities.

Net inflow of foreign portfolio investments in 2011 amounted to $4.1 billion, down by 11.5 percent from $4.6 billion the previous year.

This was caused largely by anemic appetite for equities. For shares listed in the Philippine Stock Exchange, the central bank reported, a net outflow of $170 million was actually recorded.

For December alone, the net inflow of foreign hot money reached $140 million, falling by nearly 72 percent from 490 million in the same month of the previous year.

“The figures were due to persistent eurozone debt crisis and the United States’ shaky economy,” the BSP said in a statement.

The year-on-year drop in foreign portfolio investments reversed the trend seen earlier this year, when hot money inflows were surging amid optimism of investors on the global economy.

The surge in foreign portfolio investments earlier this year even pushed the peso to strengthen to the 42-to-a-dollar territory. (The peso fell back to the 44-to-a-dollar level  on Thursday.)

Economists said the sentiment of some foreign fund owners reversed toward the end of the year as the eurozone failed to significantly address its debt woes and as the US economy continued to post anemic growth rates.

They said markets worldwide showed signs of dismay over delays in implementation of firm solutions to the debt woes in the eurozone.

BSP officials, however, said the decline in foreign hot money would be manageable and should not be seen as worrisome.

The fact that an inflow of foreign portfolio investments was still registered showed that investors still had a positive outlook on the Philippine economy, even if its performance was partly affected by developments offshore.

The Philippines grew by 3.6 percent in the first three quarters of 2011. This was a stark slowdown from the over 7 percent registered the previous year, but is more decent compared with the growth rates posted by advanced economies in the West.