‘Hot money’ inflows seen at 4-month high in Nov

MANILA, Philippines - Foreign portfolio inflows are poised to surge to their highest level in four months last November, central bank data showed, as investors swamped Philippine financial markets on the back of renewed confidence in the local economy.

Portfolio investments – also called “hot money” for the ease they enter and exit economies – reached a monthly net inflow of $736.93 million as of Nov. 23, the Bangko Sentral ng Pilipinas (BSP) said.

This was the highest monthly reading since July’s $962.75 million. It was also more than doubled from the $303.62 million net inflow posted as of Nov. 25 last year. Complete November data will be released later this week.

A net inflow indicates there were more investments which entered than left. Hot money inflows are usually placed in the bond and stock markets.

“The stable macroeconomic numbers resulted into positive corporate results thus lifting investor sentiment,” Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said in a text message over the weekend.

The month of November is usually the reporting month for third quarter corporate earnings. Last Nov. 28, the government said the local economy registered a sterling 7.1-percent growth from July to September, beating market expectations.

Ravelas said “strong growth numbers” are expected to have translated to more hot money placements in the last week of November.

The partial November figure has so far brought the 11-month net inflow to $3.4 billion, BSP data showed. Gross inflows reached $16.258 billion, while gross outflows amounted to $12.857 billion.

Amid strong inflows, BSP has been mulling the imposition of capital controls, including a 90-day hold period for hot money placements. There have been worries the rush of foreign capital could promote asset bubble formation or result in too much peso appreciation.

A strong peso trims the value of dollar export earnings and remittances from overseas Filipinos. On the other hand, asset bubbles— or the rise in asset prices beyond real market rates— is seen detrimental to the economy.

But Raul Victor Tan, senior vice president of treasury at the Rizal Commercial Banking Corp., said capital controls could only achieve “short term stability” in the financial markets.

“It will discourage short term speculative traders from entering the market,” Tan said in a text message.

“(But) inflows will continue even with a 90-day holding period as fundamentally, foreign portfolio managers still view the Philippines as a growth country,” he added.

The surge in portfolio investments has resulted in record performances of local financial markets. Last Friday, the benchmark Philippine Stock Exchange index closed at its 36th record-high for the year at 5,794.20.

Meanwhile, the 10-year Treasury bond rate fell to a new record-low of four percent in the last auction on Tuesday due to strong demand. Historic low yields were also recorded in Treasury bill auctions two weeks ago.

BSP projects portfolio investments to reach a net inflow of $4.5 billion this year. Last year, net inflow reached $4.077 billion.