Net outflow of ‘hot money’ hits $701M

More “hot money” were pulled out by foreign investors during the first two weeks of September, but economic managers are not worried as brick-and-mortar foreign direct investments are seen here to stay.

The latest Bangko Sentral ng Pilipinas (BSP) data showed that from Sept. 1-16, the country posted a net outflow of foreign portfolio investment worth $701.1 million. Net outflow meant more hot money were withdrawn than what entered the country.

From Sept. 1 to 2, $231.4 million in foreign portfolio investment outflow outpaced the $131.5 million in inflow. On Sept. 5-9, the hot money outflow of $488.4 million again exceeded the $235 million in inflow. Between Sept. 12 and 16, the inflow worth $200.7 million was likewise less than the $548.5 million in outflow.

On a monthly basis, the country last posted a net hot money outflow in April as investors were jittery ahead of the May 9 elections. Net inflows were recorded from May until August.

Year-to-date foreign portfolio investments nonetheless yielded a net inflow of $1.4 billion as the more than $13 billion in inflow was more than the $11.7 billion in outflow.

Foreign portfolio investments are in the form of placements in publicly listed shares, government and private sector IOUs and deposit certificates.

Portfolio investments are considered short-term bets—hence the nickname hot money—because these placements may be pulled out quickly.

Some quarters have been blaming President Duterte’s controversial statements against major trading partners such as the EU and the US for supposedly souring investor sentiment.

In a briefing Friday, Economic Planning Secretary Ernesto M. Pernia pointed out that the withdrawals were “just hot money, not hard investment.”

“The stock market is very sensitive to perception, sentiment and rumor,” noted Pernia, who is also director-general of the National Economic and Development Authority.

Pernia explained that the net hot money outflow  was due to a stronger US dollar—a safe haven for investors–amid uncertainty on the imminent US Federal Reserve rate increase.

“The stock market is volatile—that’s typically the case, but foreign investors are not pulling out their factories and equipment,” Pernia said.

BSP Deputy Governor Diwa C. Guinigundo likewise attributed the negative hot money flow earlier in September to “the negative impact of uncertainty in the US Fed.”

“If you read the commentaries, the uncertainty will continue until such time that the market is sure when the US adjustment will really take place. Will it be in November or in December? They are iffy about November because it’s election month. The US Fed meeting is before the election, so the likelihood for that is small. Even if there’s a likelihood that the rate hike would be in December, people will still continue to guess, and, therefore, be uncertain about the prospects,” Guinigundo told reporters yesterday.

Guinigundo also noted that “the global economy is still soft.”

“The recovery is very uneven. There are some countries that are recovering fast, while others are slow. So, in general, there is uncertainty about the global economy,” the BSP official said.

Domestically, Guinigundo maintained that “the macroeconomic fundamentals haven’t changed.”

“People will always say, ’the pronouncements of the President [were to blame].’ That’s true, but it’s difficult to say that that’s the only reason. There are many other reasons,” he said.