Net 'hot money' inflow down to $106M in May

MANILA, Philippines - “Hot money” or foreign investments in stocks, government securities and peso-denominated assets yielded a net inflow of $106 million in May, lower than the $333 million recorded a month ago and the $364.18 million a year ago, as uncertainties in the euro zone continue to send jitters to investors, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Talks about the possible exit of Greece from the euro zone became louder for the most part of May. There is the possibility of spill over effects or contagion, which could be very serious,” said BSP Deputy Governor Diwa Guinigundo.

BSP data also showed that registered investments stood at $1.5 billiion in May, almost at the same level as the April figure.

The BSP attributed this to the initial public offerings by Bloomberry Resorts Corp., Rockwell Land Corp., East West Banking Corp. and Calata Corp.

Total inflows amounted to $1.524 billion while outflows stood at $1.418 billion, resulting in a net inflow of $106 million.

 “Outflows on the other hand, rose to $1.4 billion or by 23.9 percent from last month’s level due to growing concerns about Greece and Spain,” the BSP said.

Funds went to peso-denominated government securities and shares listed in the stock market, with net foreign exchange inflows of $87 million and $69 million, respectively.

On the other hand, money market instruments resulted in net outflows of $49 million.

The main beneficiaries of investments in PSE-listed shares were holding firms, garnering $337 million in investments; diversified industrial sector with $228 million; banks with $183 million; property companies with $138 million; and telecommunications companies with $109 million.

Investors came from United States, United Kingdom, Singapore, Hong Kong and Luxembourg. The United States continued to the main beneficiary of outflows from these investments.

Hot money is one of the indicators of investor confidence in an economy but they move very quickly in and out of the markets which is why they are called hot money.

Monetary authorities believe that foreign capital would continue to flood emerging markets such as the Philippines because of the economic slowdown in Europe.

However, strong capital inflows can be speculative and feed inflation through excessive liquidity in the financial system.

During its rate-setting policy meeting on Thursday, the BSP kept the overnight borrowing rate back to a record low of four percent and the overnight lending rate to six percent due to the benign inflation outlook and after two rate cuts in January and March.