Net 'hot money' outflow soars to $911 M - BSP

The net outflow of portfolio investments soared to $911.68 million in the first 10 months of the year, reflecting the massive withdrawal of foreign investments in Philippine securities.

The Bangko Sentral ng Pilipinas (BSP) reported yesterday that there was a $390-million net outflow of registered foreign portfolio investments from the market in October alone, the highest monthly net outflow so far this year.

Portfolio investments are foreign funds invested in stocks, government securities and the money market. Of10 referred to as hot money, these funds are more vulnerable to shifts in expectations and perceptions than direct investments.

The BSP reported that the heavy outflow in October drew the nine-month outflow ever closer to the $1-billion mark. Last year, the BSP reported a net inflow of $3.675 billion over the same period.

BSP governor Amando Tetangco said risk aversion triggered the withdrawal of foreign portfolio investments in the country, in10sified further by expectations that the global slowdown would be worse than originally thought.

In October, the BSP said gross

portfolio inflows amounted to $494 million but this was wiped out completely by outflows that amounted to $884 million.

The inflows were invested in listed shares at the Philippine Stock Exchange, which accounted for 79 percent of hot money investments during the month, amounting to $390 million. The rest were invested in fixed-rate treasury bonds and peso bank deposits.

But the withdrawal of foreign portfolio investments from the stock market amounted to $272.7 million and pull-out from government securities amounted to $204.7 million. Withdrawals of peso bank deposits amounted to $406.6 million.

With monthly withdrawals battering the Philippine capital market, January to October levels sank deeper into the negative zone compared with the nine-month deficit recorded at over $521.7 million.

Gross inflows for the 10-month period amounted to $7.6 billion, significantly lower than last year’s gross inflows of $13.39 billion over the same period.

But outflows overtook inflows this year, amounting to $8.49 billion compared with the $9.7-billion outflow over the same period last year. Unlike last year when there was a $3.675-billion net inflow, this year’s outflow left a gaping $911.68-million net outflow.

Over the 10-month period, the BSP reported that the hardest hit by withdrawals were listed shares, accounting for 39 percent of total outflows. Government securities accounted for 23 percent of outflows while money market instruments and peso bank deposits accounted for a combined share of 38 percent.

As global markets spiraled out of control and dropped to record lows, foreign portfolio investments poured out of the country and Tetangco said this was no surprise, considering the fact that the US market had gone through an unprecedented meltdown.

“The effects of the meltdown in the US financial markets have spilled over to other countries, and subsequent fears that a recession in major economies is imminent,” Tetangco said.

The BSP data were based on registered foreign portfolio investments which, Tetangco explained, was a voluntary system that allowed investors to buy foreign exchange from the banking system for repatriation of capital and remittance of dividends/earnings that accrue on the investments.

But Tetangco admitted that sentiments on the whole remained sensitive to downsides, especially considering that the global economy appeared headed downwards and the fact that the financial troubles in the US were far from over.

Despite its strong fundamentals, the country was not spared from the global stampede that sent stock prices falling in the wake of record-high oil prices and the unresolved credit crunch in the US.