Net ‘hot’ money inflow down 55% in first 3 months

Foreign investments in peso-denominated stocks, bonds and other portfolio instruments fell in the first quarter as expectations of a mild recession in the Euro zone heightened risk aversion among fund owners, dampening demand for assets in emerging markets.

The Bangko Sentral ng Pilipinas, however, said there was likelihood for foreign “hot” money to increase in the coming months as desire for yields would eventually push investors to buy portfolio assets from the Philippines and other emerging markets.

Emerging markets, it added, are expected to outperform advanced economies and to drive global economic growth.

Data from the BSP showed that the net inflow of foreign portfolio investments amounted to $438.98 million in the first quarter, down by 55 percent from $972.55 million in the same period last year.

Gross inflows reached $4.03 billion, while outflows amounted to $3.59 billion.

Inflows were mostly in the form of investments in stocks listed on the Philippine Stock Exchange and in government securities.

Investments came mostly from the United States, the United Kingdom, Singapore, Hong Kong and Luxembourg.

For March, alone, the net inflow of foreign portfolio investments reached $158.27 million, falling by 35 percent from $245.39 million in the same month last year.

Gross inflows for the month reached $1.32 billion, while outflows amounted to $1.16 billion.

Monetary officials said the ongoing crisis in the Euro zone had tempered investor appetite for perceivably risky assets, such as those from the Philippines and other emerging markets.

In times of uncertainty, they said, there was tendency for some investors to stay in the sidelines or simply hold on to their dollars.

The Euro zone is likely to contract by 0.3 percent this year, according to estimates by the International Monetary Fund.

However, officials said the possibility of a rebound in foreign portfolio investments could not be discounted.

Portfolio fund owners may eventually search for yields, and assets from emerging markets like the Philippines are the likely choices.

Emerging economies, especially in Asia, are expected to post much faster economic growth rates this year than those in industrialized countries.

Officials said potentially favorable developments, such as the continued recovery of the United States from the recession in 2009 and the growing global liquidity, could eventually boost demand for portfolio assets from emerging markets.

In case portfolio inflows substantially rise in the months ahead, the BSP said it was prepared to implement appropriate policies, such as amendments to foreign exchange rules, to temper inflationary pressures.