Hot money reverts to net outflow in February

MANILA, Philippines — Foreign portfolio investments reverted to a net outflow in February as investors cashed in their profits with the impending rate hike by the US Federal Reserve.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed foreign portfolio investments, or hot money, booked a net outflow of $545.14 million in February, a complete reversal of the $126.16 million net inflow recorded in January.

The amount was also 33.3 percent higher than the $409.01 million net outflow registered in February last year.

 “(This) may be attributed to profit taking as well as investor reaction to news of possible rate increases by the US Federal Reserve due to an expected surge in inflation amidst implementation of the US government’s tax cuts,” the BSP said.

The US Fed has penned three rate increases for this year to match the number of hikes implemented last year.

Foreign portfolio investments are called hot or speculative money because of its flighty nature.

The BSP said inflows inched up 4.83 percent to $1.03 billion in February from $981.2 million in the same month last year. The amount was 36.6 percent lower than the $1.62 billion inflows recorded in January.

About 81 percent of investments registered in February were in securities listed at the Philippine Stock Exchange, particularly in holding firms, property companies, banks, food, beverage and tobacco firms as well as casinos and gaming companies.

On the other hand, the 19 percent balance went to peso government securities.

Investments from the United Kingdom, US, Malaysia, Hong Kong, Luxembourg, and Singapore accounted for 85.1 percent of the total inflows last month.

Meanwhile, outflows went up 13.2 percent to $1.57 billion in February from $1.39 billion in the same month last year. The figure was also 7.7 percent higher than the $1.46 billion outflows recorded in January.

“The US continued to be the main destination of outflows, receiving 73.8 percent of total remittances,” the central bank added.

Investors have also expressed concern about the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law on inflation.

The consumer price index accelerated to its fastest pace in more than three years to 4.5 percent in February from four percent in January.

The BSP tried to assure the impact of the TRAIN Law on inflation is transitory in nature with inflation averaging 4.3 instead of 3.4 percent this year before easing to 3.5 percent instead of 3.2 percent next year.

The BSP has set a medium term inflation target of two to four percent between 2018 and 2020. The BSP last breached its inflation target of three to five percent in 2008 when it reached 9.3 percent due to elevated oil and food prices.

The BSP has kept an accommodative stance keeping interest rates unchanged for the past three years to support the expanding economy. It last raised benchmark rates by 25 basis points in September 2014.

For this year, the BSP sees the Philippines booking a net outflow amounting to $900 million.

The country booked a net foreign portfolio investment outflow of $205.05 million last year, reversing the net inflow of $404.43 million in 2016 as more capital were repatriated from the country due to the series of rate hikes by the US Federal Reserve, as well as the closure order on several mining sites.

The BSP was looking at a net outflow of $2.5 billion worth of foreign portfolio investments last year, but the pull out of capital was cushioned by the passage of the tax reform law as well as the sustained gross domestic product (GDP) growth.