Net hot money inflows surge to $1.7B in first 4 months

Foreign hot money inflows hit $1.7 billion in the first four months of the year as emerging markets became attractive again to fund managers looking for alternatives to the debt market, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Net portfolio or hot money investments reached $260 million in April, down from the $562-million level recorded at the end of March.

The BSP said total inflows amounted to $2.809 billion from January to April while outflows amounted to $1.088 billion, indicating that portfolio investments remained tentative.

Portfolio investments generally go to equity stocks listed at the Philippine Stock Exchange (PSE) but the bulk of inflows stay only long enough to make a profit.

Despite the huge outflows, however, BSP Deputy Governor and officer-in-charge Amando M. Tetangco Jr. said the inflows for the first four months of the year was still about 15 times more than the $146.5-million net inflows recorded over the same period last year.

"Last year, there was much more political uncertainty so most of these portfolio investors stayed in the sidelines," Tetangco said. "This year, the prospects are better so more of them are coming in."

For the whole year, the BSP earlier said total foreign portfolio investments could go up to as high as $4 billion, especially if the Arroyo administration could deliver its entire P80-billion tax reform package.

According to the BSP, portfolio investments were encouraged by the unexpectedly early removal of the Philippines from the blacklist of the Financial Action Task Force (FATF).

If, on top of the FATF development as well as the Supreme Court ruling allowing foreign investors into local mining companies, the government would generate P80 billion in incremental revenues, the BSP said net portfolio investments would surge even more.

After the huge surge in hot money flows recorded in January, the BSP reported a slowdown in foreign portfolio investment in February but the amount still eclipsed year-ago levels.

The BSP said this was an indication that the recent improvements in the long-term trajectory of debt and fiscal management had changed global perception enough to trigger the inflow of foreign portfolio investments.

"We are right now enjoying better credibility as investors wait for further reforms," Tetangco said.

BSP Governor Rafael Carlos Buenaventura said earlier that current inflow levels were durable but only if the National Government does not ruin its own momentum. "It can be more durable and sustainable if we do all these things we have to do. All these good things are really up to us."

Buenaventura said the stockmarket is showing signs of life that investors have been watching carefully such as Semirara Mines’ prospects and the developments in the mining sector as a whale.

"It won’t happen overnight but these are possibilities that were not present before," Buenaventura said.