Hot money net inflows jump to USD 1.38B in July

More foreign portfolio investments entered the country than left in July, reflecting higher investments in government securities, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Transactions on foreign investments registered with the central bank through authorized agent banks posted a net inflow of USD 1.38 billion in July. This was higher than USD 961.58 million in the same month a year ago.

It was also a turnaround from the USD 27.26-million net outflow recorded in June.

Foreign portfolio investments are called “hot money” because of the ease with which they can enter or leave a jurisdiction, as opposed to foreign direct investments, which are considered less fickle.

BSP data showed that gross inflows for the month more than doubled to USD 2.43 billion from USD 1.04 billion in June. Year on year, gross inflows jumped by 54.3% from USD 1.58 billion.

The bulk of investments (71.3%) went to peso government securities. This was followed by investments in Philippine Stock Exchange-listed securities, mainly banks, holding firms, property, transportation services, and food, beverage and tobacco (28.7%).

In July, investments mostly came from the United Kingdom, the United States, Singapore, Luxembourg and Norway — accounting for 93.7% of total foreign inflows.

Meanwhile, gross outflows slipped by 1.9% to USD 1.05 billion in July from USD 1.07 billion in June. Year on year, gross outflows surged by 70.6% from USD 614.93 million in July 2023.

The United States received nearly half (45.3%) of total outward remittances, equivalent to USD 475.35 million.

In the seven month period, short-term foreign investments yielded a net inflow of USD 1.46 billion, skyrocketing by 830.7% from the USD 157.3-million inflows in the same period a year ago.

Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said that the higher net inflow in July was also due to “increasing investor confidence from developed economies due to improving macroeconomic indicators.”

Economic growth expanded by 6.3% in the second quarter, its fastest in five quarters. This was also faster than 5.8% in the first quarter and 4.3% in the second quarter of 2023.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also noted more dovish signals from the US Federal Reserve and BSP that could support investment activity.

“For the coming months, possible Fed rate cuts later in 2024 up to 2026 could be matched locally and would lead to possible further gains in the fixed-income/bond markets and stock markets,” he said.

Money markets expect the Fed’s first 25-basis-point cut of this easing cycle at its meeting later this month.

BSP Governor Eli M. Remolona, Jr. has also signaled the possibility of delivering one more 25-bp rate cut in the fourth quarter.

This after the Monetary Board reduced rates by 25 bps last month to bring the key rate to 6.25% from the over 17-year high 6.5%.

“Likewise, fiscal consolidation in the Philippines is a good indicator of future economic performance as government spending is expected to be more targeted and productive,” Mr. Rivera said.

“This is supported by hot money coming in towards transportation, property, construction, services — all of which are booming especially in the foreseeable future,” he added.

The BSP expects foreign portfolio investments to end the year at a USD 3.1-billion net inflow. — Luisa Maria Jacinta C. Jocson