Speculative money drives down 5-month outflows

Laurent Agcaoili – The Star of the Philippines

November 25, 2022 | 00:00

MANILA, Philippines – More hedge funds have flowed into the Philippines than in October, ending five consecutive months of net outflows amid improving global conditions, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data released by the central bank showed that total foreign investment registered through licensed agent banks recorded a net inflow of $83.44 million in October – a reversal of the 17-month high net outflow of $367.3 million in September.

The inflow was also a reversal of the net outflow of $221.1 million recorded in October last year.

Foreign investments registered by the BSP through authorized agent banks are also known as hot money or hedge funds, as they regularly circulate between the financial markets, with investors trying to ensure that they obtain the the highest possible short-term interest rates.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said October’s net inflow was due to improving global financial conditions, with U.S. stock and bond markets likely bottoming in price as that US inflation was beginning to subside.

The US Federal Reserve finally signaled smaller rate hikes after making massive increases to keep inflation under control.

The Philippines recorded net outflows of foreign portfolio investment in the past five months, with $270.42 million recorded in May, $342.19 million in June, $103.14 million in July, 86 $.29 million in August and $367.3 million in September.

For October, gross hedge fund outflows fell 52% to $561.11 million from $1.17 billion in the same month last year.

In contrast, gross inflows mainly from the UK, US, Singapore and Hong Kong fell 32% to $644.55 million from $949.58 million.

The data showed the majority of inflows, at 73%, were invested in stocks listed on the Philippine Stock Exchange (PSE), particularly in real estate, banks, holding companies, food, beverages and tobacco as well as telecommunications.

About 27% went to investments in government securities in pesos, while less than 1% went to other instruments.

Ricafort attributed the tightening in foreign portfolio investment outflows to the stronger exchange rate since the last week of September, reflecting market sentiment.