More short-term foreign investment flowed out of the Philippines than came in in October, data from the Bangko Sentral ng Pilipinas (BSP) showed.
Foreign investment transactions registered with the central bank through authorized banks showed a net outflow of $529.68 million in October, higher than the $328.19 million outflow in the same month a year ago.
This was also a reversal from September’s net inflows of $1.03 billion.
These foreign portfolio investments are also called “hot money” because of the ease with which these funds enter and leave the economy.
Central bank data shows gross hot money outflows rose 56.7% to $2.01 billion in October, up from $1.28 billion a year ago. It also rose 33.4% from September’s $1.5 billion outflow.
“The US remains the main destination of outflows, receiving $889.06 million (or 44.2%) of total outward remittances,” the BSP said.
Meanwhile, gross inflows rose 55.1% to $1.48 billion, compared to $954.38 million in the same month a year earlier. Month on month, gross inflows fell 41.5% from $2.53 billion.
The top five investor economies during the month were the United Kingdom, Singapore, the United States, Luxembourg and Malaysia, accounting for the largest share (87.8%) of foreign investment inflows.
The majority of investments (54.5%) were in bank securities listed on the Philippine Stock Exchange; holding companies; transportation services; property; and food, drink and tobacco. The rest (45.5%) went to peso government bonds.
In the January-October period, BSP-recorded foreign investments generated net inflows of $2.49 billion, a reversal from the outflows of $715.43 million in the same period in 2023.
Broken down, gross inflows were $15.02 billion, while gross outflows in the first ten months were $12.52 billion.
The BSP expects foreign portfolio investments to generate net inflows of $4.2 billion by 2024.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said more hot money was leaving the country as geopolitical risks in the Middle East led to profit-taking in global and local markets.
“Regional geopolitical tensions and local economic risks, such as fiscal consolidation and concerns about growth momentum, have likely contributed to investors’ cautious stance,” said John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies.
Markets also factored in Donald J. Trump’s victory ahead of last November’s U.S. presidential election, Ricafort said. Mr Trump’s protectionist policies were expected to fuel US inflation and affect the US Federal Reserve’s easing cycle.
“The Fed’s monetary policy stance has likely weighed on investor sentiment. While expectations of an easing of US policy rates could eventually attract funds, the current cautious environment has contributed to capital outflows,” Rivera said.
In the coming months, Mr Ricafort said more short-term capital could enter the country following the recent reduction in banks’ reserve requirements (RRR).
The BSP reduced the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions by 250 basis points from 9.5% to 7%, effective October 25.
“(This) would have pumped approximately €400 billion into the banking system in terms of more loanable funds by banks, as well as more funds from banks for investments in bonds and other fixed income investments, equities, foreign exchange, real estate and other investments. ”, he added.
The country’s improved credit outlook will also support investor sentiment, Mr Ricafort said.
Last week, S&P Global Ratings published affon Tuesday affirmed the Philippines’ investment grade rating and raised its outlook to “positive” from “stable,” reflecting the country’s strong growth potential and improved institutional strength. — Luisa Maria Jacinta C. Jocson