Hot money outflow in May largest since 1999

MANILA, Philippines - Foreign portfolio investments slumped the most last month since 1999 after investors shied away from emerging markets on indications US stimulus measures will be scaled down.

The Bangko Sentral ng Pilipinas (BSP) reported on Friday that portfolio placements— usually placed in the bond and stock markets— reversed to a net outflow of $640.84 million in May, the first for the year.

A net outflow indicates more investments left the country than entered. The May tally was also the highest monthly outflow based on available records from the BSP website that dated back to 1999. 

For the first five months though, portfolio investments— also called hot money for the ease they enter and exit economies— remained on the positive territory at $1.577 billion, up 74.4 percent from last year’s $904.16 million.

The BSP expects hot money net inflow to reach $3 billion this year, although that amount may be revised next week.

“The announcement of a possible scaling down of quantitative easing (QE) in the United States” drove investors to withdraw funds from emerging markets such as the Philippines last month, the BSP said in a statement.

As the United States economy showed signs of recovery, the US Federal Reserve has signaled last month that some of its members favor a “downward” adjustment to its QE, which involves the purchase of $85 billion worth of securities every month.

The measure, instituted five years ago, was meant to flood the US economy with cheap money and lower interest rates to buoy investment and consumption and support economic growth after the financial crisis.

Broken down, bulk of the investments was placed on the Philippine Stock Exchange (PSE) at $1.8 billion, accounting for 92 percent of the total. This was followed by those in government securities ($150 million, 7.5 percent) and peso time deposits ($10 million, 0.5 percent). 

Of those in the PSE-listed companies, majority of the inflows went to holding firms ($664 million), banks ($297 million), property firms ($205 million), transportation services companies ($136 million) and food, beverage and tobacco firms ($135 million).

Hot money inflows mainly came from the United States, United Kingdom, Singapore, Luxembourg and Hong Kong, BSP said. The US continued to be the main beneficiary of outflows. 

Portfolio placements form part of the country’s balance of payments, which measure our capacity to meet external trade obligations and service foreign debts.