Decline in 'hot money' inflow temporary - BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the decline in hot money brought about by the crisis in the euro zone is temporary and that these portfolio inflows would start pouring in again once investors realize that the Philippines is a safe haven for their funds.

“I believe it will catch up in due time. Now everybody is going crazy. They need to digest economic and market realities,” said BSP Deputy Governor Diwa Guinigundo.

He said that eventually investors would realize that the Philippines has a fundamentally sound economy.

“We have a very strong balance of payments. Banking system is very stable. Fiscal condition is improving. Exchange rate is very stable. We did not experience any slowdown in 2011. Inflation rate is manageable and continues to come down,” said Guinigundo.

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.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that registered investments were almost at the same level as April at $1.5 billion.

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 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.