Net inflow of ‘hot’ money seen in May

MANILA, Philippines–Foreign investments continued to flow into the Philippines in May after the country earned its highest credit score ever from a major rating firm, central bank data on Wednesday showed.

Net inflows of foreign portfolio investments, or “hot” money, in May reached their highest since November last year, with most of the cash going into publicly listed companies.

In a statement issued Wednesday, the Bangko Sentral ng Pilipinas (BSP) said net hot money inflow reached $545.08 million in May, better than the net outflow of $640.84 million last year.

Year to date, the country was still behind with a net outflow of $1.42 billion compared to last year’s $1.57 billion.

Portfolio investments are referred to as hot money due to their fickle nature, exiting markets as fast as they enter. This makes it the fastest barometer for how international investors view a certain economy.

In May, the country’s sovereign debt rating was upgraded by Standard & Poor’s (S&P) to a notch above the firm’s minimum investment grade, or two notches above “junk” status. Moody’s Investor Service and Fitch Ratings still have the Philippines at a notch below S&P’s rating.

The upgrade came as a result of fiscal reforms implemented by the Aquino administration, which have allowed the government to keep its deficit well below its self-imposed ceiling of 2 percent of gross domestic product (GDP).

S&P likewise added that it was confident that recent reforms could and would be sustained after 2016, regardless of who succeeds President Aquino.

The BSP said 75.2 percent of inflows for the month went to shares in companies listed on the local bourse. The biggest gainers were banks, property firms, holding companies, food, beverage, tobacco firms and telcos.

About a fifth, or 20.7 percent, of investments went to government securities, while the rest went to peso time deposits.

The United Kingdom, Singapore, the United States, Hong Kong and Luxembourg were the top sources of gross hot money inflows.

Meanwhile, most of the gross outflows of the month, or 91.6 percent, went back to the United States.

According to the BSP, gross inflows reached $1.99 billion in May—slightly less than the $2 billion that entered the country last year. Over April, investments in May were up 5 percent.

Outflows in May, meanwhile, declined from $2.6 billion in 2013 to $1.4 billion this year. From April, outflows were also lower by 8.1 percent.

Despite the net inflow in May, the country has yet to recover from three consecutive months of net outflows since the start of the year. In January, a record net outflow of $1.84 billion was recorded due mainly to the repatriation of cash back to advanced economies.

For the whole of 2014, the government projects a net inflow of $2.1 billion in hot money, lower than last year’s $4.22 billion.