'Hot money' leaves in September as investors lighten their EM portfolios

MANILA, Philippines — There was an exodus of short-term foreign funds in the Philippines in September, as worries about elevated inflation and possibility of sooner-than-expected rate hikes in developed economies prompted investors to start minimizing their exposure to emerging markets.

What’s new

Data from the Bangko Sentral ng Pilipinas released Thursday showed foreign portfolio investments recorded a net outflows of $24 million last month. A net outflows means more flighty foreign funds left the country against those that came in.

This was a turnaround from $12 million net inflow in August. Year-to-date, net outflows amounted to $459 million.

Why this matters

Foreign portfolio investments are also known as “hot money” because they come and go markets with ease, unlike firmer commitments like foreign direct investments. These funds are very sensitive to domestic and global developments.

Last month, worries over accelerating inflation and pressure on central banks to hike interest rates — most especially in the US — weighed on Asian equity markets. In the Philippines, inflation eased to 4.8% in September, which was still above the BSP’s 2-4% annual target.

Sought for comment, Jun Neri, lead economist at Bank of the Philippine Islands, said the September net outflow "could be due to foreign fund managers selling their peso-denominated bonds as they start to lighten their portfolios of EM bonds."

"This is consistent with the drop in bond prices last month. Incidentally, this selling likely continued through October as bond prices continued to fall this month," Neri added.

For this year, the BSP projects hot money to yield a net inflow of $4.3 billion, lower than $8.2 billion net inflow recorded in 2020.

By the figures

• Gross hot money inflows rose by 47.3% month-on-month to $807 million in September. Data revealed 74.3% of these investments were parked in publicly-listed companies while the remaining were invested in government securities like Treasury bonds and bills.
• Meanwhile, gross outflows soared by 52.4% month-on-month to $1.21 billion, with the US, considered a safe haven of investors, receiving 70.8% of total outflows.