Hot money reverses to outflows in May

Published July 1, 2022, 1:25 PM

by Lee C. Chipongian

Foreign portfolio investments, which refer to the purchase of securities, stocks and bonds, reversed to a net outflow of $270.42 million in May from a $1.36-billion net inflows in the previous month, said Bangko Sentral ng Pilipinas (BSP) on Friday, July 1.

Year-to-date, these speculative funds or hot money remained in an overall net inflow of $1.06 billion from $203.70 million same period last year.

Foreign portfolio investment refers to the purchase of securities and other financial assets by investors from another country. Examples of foreign portfolio investments include stocks, bonds, mutual funds, exchange traded funds, American depositary receipts (ADRs), and global depositary receipts (GDRs).

US dollar/Manila Bulletin file photo

For the month of May only, gross inflows amounted to $965.62 million while gross outflows totaled $1.24 billion. From January to May, gross inflows reached $6.55 billion while gross outflows amounted to $5.49 billion

The registered investments for May is down by 55.7 percent compared to $2.18 billion in April, noted the BSP.

About 80.1 percent of hot money funds were invested in listed securities such as information technology, banks, property, holding firms and telecommunications.

The rest or 18.3 percent were placed in peso government securities. Another 1.7 percent went to other portfolio investments.

The BSP noted investments tallied for May came mostly from investors located in the United Kingdom, US, Singapore, Luxembourg and Hong Kong. The top five investor countries have a combined share of 76.2 percent of total hot money.

Foreign portfolio investments are under financial accounts as a component of the balance of payments. For 2022, the BSP forecasts hot money inflows to reach $4.5 billion, fueled in part by the planned issuances of initial public offerings.

Hot money inflows are inward foreign investments not only in listed securities and government securities but also in peso time deposits with banks with minimum tenor of 90 days. It is also invested in peso debt instruments, unit investment trust funds, and other portfolio investments such as Exchange Traded Funds and Philippine Depositary Receipts.

The BSP makes it optional for banks to register inward foreign investments based on the rules on foreign exchange transactions. “It is required only if the investor or its representative will purchase foreign exchange from authorized agent banks and/or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of earnings that accrue on the registered investment,” said the BSP.

However if transactions will not be registered with the BSP, a foreign investor can still repatriate capital and remit earnings on its investment but the foreign exchange will have to be sourced outside the banking system, said the BSP.

Last year, hot money was in net outflows of $574.46 million, down by 86.5 percent from 2020’s $4.24 billion net outflows.