June hot money posted $335-m inflows

Registered foreign portfolio investments, or hot money, posted a net inflow of $335 million in June, a reversal of the $235-million net outflow a year ago, as foreign fund managers reacted positively to the progress in the government’s COVID-19 vaccination program and the unchanged policy rates, the Bangko Sentral ng Pilipinas said over the weekend.

BSP data show that gross inflows for the month reached $2.1 billion, higher than the $1.8-billion gross outflows. But the June 2021 net inflow was lower than the net inflow of $417 million recorded in May 2021.

About 91 percent of investments registered were in Philippine Stock Exchange-listed securities (investments mainly in food, beverage and tobacco companies, property firms, banks, holding firms and retail companies) while 9 percent went to investments in peso government securities.

The United Kingdom, the United States, Singapore, Luxembourg and Norway were the top five investor countries for the month with combined share to total at 74.2 percent.

“Domestic developments during the month included investor reaction to the approval by the House of Representatives on the third and final reading of the Bayanihan to Arise as One Act which aims to provide financial aid to be given to all Filipinos amid the COVID-19 pandemic; positive data on foreign direct investments in the country; unemployment rate for April 2021; inflation rate for May 2021 which remained unchanged at 4.5 percent since March... ,” the BSP said.

The BSP said other developments in June include “the government’s decision to maintain quarantine restrictions in Metro Manila and some nearby provinces; the International Monetary Fund’s downgrading of the country’s growth outlook for this year; the BSP’s decision to maintain policy rates; and the progress in the nation’s inoculation program.”

Portfolio investments in the first six months yielded a net outflow of $160 million, lower than the $3.3-billion net outflow for the same period last year amid the ongoing impact of the COVID-19 pandemic to the global economy and financial system.

“This has been accompanied by international and domestic developments such as the new US administration; progress of vaccine rollout in the country; continuing quarantine measures to contain the surge in COVID-19 infections; the country’s inflation breaching the 2.0 to 4.0 percent target which is consistent with the outlook that such will persist during the first half of this year due to supply side pressures; and the slowing down in the contraction of the country’s GDP which posted a decline of 4.2 percent year-on-year in Q1 2021 from a high of 17.0 percent in Q2 2020,” the BSP said.

Registration of inward foreign investments with the BSP is optional under the rules on foreign exchange transactions. It is required only if the investor or its representative will purchase foreign exchange from authorized agent banks and/or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of earnings that accrue on the registered investment.

Without such registration, the foreign investor can still repatriate capital and remit earnings on its investment but the foreign exchange will have to be sourced outside the banking system.

Foreign portfolio investments are also called “hot money” because of the ease they are invested in and taken out of the domestic financial markets.

Last year, registered foreign portfolio investments yielded a net inflow of $5.3 billion. This year, BSP expects hot money to post a net inflow of $5.5 billion.