PH posts net ‘hot’ money outflow

The Bangko Sentral ng Pilipinas on Thursday reported a net outflow of foreign portfolio investments or “hot” money in June, as the prolonged debt woes in the Euro zone led to global risk aversion.

“Investments declined as uncertainties about the euro zone affected global markets and induced heavy sell-offs,” the BSP said in a statement.

Data from the BSP showed that gross inflows for the month reached $1.215 billion, while outflows amounted to $1.223 billion.  This resulted in a net outflow of $7.69 million.

Monetary officials said the outflow of foreign portfolio investments during the month reflected the volatility of the sentiment of portfolio investors, who were responding to reports about the banking sector woes in Europe which aggravated the adverse impact of the sovereign debt problems in this region’s economy.

Despite the net outflow in June, however, the central bank said a net inflow was recorded for the first half of the year as investor sentiment for emerging markets was still favorable vis-à-vis that for advanced economies.

Monetary officials said yield-seeking investors would go for emerging market assets, given the poor growth prospects in Western economies.

The net inflow of foreign portfolio investments to the Philippines reached $871 million in the first semester of the year. This was down by 64 percent from $2.39 billion in the same period last year.

The flow of portfolio funds is expected to register a significant improvement in July following the recent credit ratings upgrade the country got from Standard & Poor’s.

S&P, citing the country’s improving fiscal condition and rising dollar reserves, raised the Philippines’ credit rating from two notches  below investment grade to one notch below.

Following the announcement of the upgrade on July 4, investments in peso-denominated stocks rose, enabling the Philippine Stock Exchange Index to hit a new high and the peso to strengthen to a four-year high of 41.68:$1 on July 5.

Monetary officials said foreign capital flows were expected to recover starting this month given favorable growth projections for the Philippines.

The Philippine economy grew by 6.4 percent in the first quarter from a year ago, faster than the 4.9 percent recorded in the same period last year.

The BSP said the Philippines had the ability to sustain this growth pace throughout the year, given strong domestic demand and the liquidity in the banking sector.