More ‘hot money’ left country in March

Dollar and pound banknotes are seen in this picture illustration taken on April 28, 2017. — REUTERS

MORE SHORT-TERM foreign investments left the Philippines than what entered in March, reflecting heightened uncertainty from the Russia-Ukraine war and monetary policy tightening in the United States.

Data from the Bangko Sentral ng Pilipinas (BSP) showed foreign portfolio investments or “hot money” yielded a net outflow of $305.08 million in March, 43.6% lower than the $540.97 million in net outflow a year earlier.

However, this was a reversal from the $274.04 million in net inflow in February.

March’s net outflow was also the biggest since $339.7 million in July 2021.

The net outflow of foreign portfolio investments reflected the volatility in international markets since the Russia-Ukraine war erupted in late February, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The monetary policy tightening by the US Federal Reserve might have also spurred the exit of more hot money from the Philippines, he added.

The US central bank last month raised its policy rate by a quarter percentage point as part of its battle against decades-high inflation. The Fed is expected to raise interest rates by 50 basis points at next week’s meeting, Reuters reported.

Asian Institute of Management economist John Paolo R. Rivera said investors were also on a risk-off sentiment ahead of the national elections on May 9.

“This may be due to investor sentiment regarding the upcoming political landscape as a new administration is about to enter. This may be reflective of market and investor sentiment about politics,” he said in a Viber message.

Former Senator Ferdinand R. Marcos, Jr. remains a frontrunner in pre-election polls, but a Bloomberg poll showed analysts and investors preferred Vice-President Maria Leonor G. Robredo as the country’s next president.

BSP data showed gross inflows of hot money climbed by 55% to $1.277 billion in March from $824.23 million a year earlier.

The top five investor economies during the month included the United Kingdom, United States, Luxembourg, Singapore and Hong Kong, which accounted for 78.4% of foreign portfolio investment inflow.

The bulk of investments went to securities of holding companies; property; banks; food, beverage and tobacco; and transportation services. The rest were invested in peso government securities.

Meanwhile, gross outflows rose by 15% to $1.582 billion in March from $1.365 billion a year ago.

For the first quarter, hot money yielded a net outflow of $16 million, 96.6% lower than $483 million a year earlier.

International developments as well as risk-off sentiment as the election draws nearer would likely continue to cause worry among foreign investors, Mr. Ricafort said.

“For the coming months, more aggressive Fed rate hikes, the lingering Russia-Ukraine conflict for more than two months already, some lockdowns in China, as well as election-related uncertainties could be headwinds to the recovery in the local economy and financial markets,” he said.

The BSP expects hot money to yield a net inflow of $4 billion in 2022. — Luz Wendy T. Noble

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