November 25, 2017 | MANILA, PHILIPPINES

‘Hot money’ flows off to a strong start

MORE foreign capital entered the Philippines as the year opened, ending a two-month streak of outflows on the back of renewed optimism and strong economic growth reported last month, the central bank said yesterday.

Foreign portfolio investments -- also called “hot money” due to the ease by which such funds enter and leave markets -- saw a $301.33-million net inflow in January, reversing outflows amounting to $129.85 million a year ago and ending a trend of outbound capital seen during the past two months.

Net hot money outflows hit $314.65 million in December and $607.31 million in November, which central bank officials described as a “very challenging” time for financial markets due to key events in the United States. Those months saw Republican Donald J. Trump elected as president, while the Federal Reserve proceeded with another 25-basis-point rate hike.

More investors initially plucked out placements in the first week of the year, before deciding to invest more for much of the month, according to data released by the Bangko Sentral ng Pilipinas (BSP).

The biggest inflow was seen in the two days of Jan. 30-31, when gross investments reached $330.74 million, against withdrawals of just $84.04 million.

For the entire January, capital inflows totalled $1.147 billion, surging by 39.8% from the $820.4 million a year ago. This was partially eroded by a $845.83-million withdrawal by foreign investors in the same month.

In a statement, the central bank said the net inflows were due to “optimism about the New Year and positive investor reaction to the announced 6.6% GDP (gross domestic product) growth of the country in the fourth quarter of 2016.”

The National Economic and Development Authority announced on Jan. 26 that the Philippine economy expanded by 6.6% in the fourth quarter and by 6.8% for the full year, falling close to the high end of the government’s 6-7% growth goal and cementing the country’s place among Asia’s best performers.

The United Kingdom, US, Singapore, Luxembourg and Hong Kong remained the biggest sources of capital last month, accounting for 79.6% of total “hot money” investments.

Bulk of the outflows found their way to the US at 89.3% of total outbound funds.

Bulk of the portfolio inflows -- $360 million or 95.4% -- went to shares of listed companies, mainly to banks; holding companies; property firms; food, beverage, and tobacco producers, and utility providers.

Some 3.4% of total inflows went to government-issued debt papers, while 1.2% went to other peso debt instruments, which ended with cumulative net outflows amounting to $73 million.

Sought for comment, an analyst said market players likely saw the Philippines as a more favorable venue for investments as global concerns came to focus.

“We attribute the net inflow to a typical rebalancing by foreign portfolio managers favoring risky asset markets at the start of the year,” said Emilio S. Neri, Jr. lead economist at the Bank of the Philippine Islands.

“Domestic political concerns also appear to have abated in January relative to a ‘noisy’ late-2016 as markets appear to have given more attention to international political developments including Donald Trump’s inauguration and his controversial executive order to implement a travel ban.”

The BSP expects a $900-million “hot money” net outflow this year.

Portfolio investments logged a $404.43-million net inflow last year, beating the central bank’s forecast of a $1.1-billion outflow mainly due to a record influx of capital seen in July.