USD 284-M hot money exits Philippines in Jan.

More foreign capital continued to exit the Philippines, yielding a net outflow for a second straight month in January, according to the Bangko Sentral ng Pilipinas (BSP).

Transactions on foreign portfolio investments registered with the central bank through authorized agent banks posted a net outflow of USD 283.69 million during the month.

This was 274.1% higher than the USD 75.83-million net outflow recorded in January 2024.

However, this was a 41.8% drop from the USD 487.37-million outflow in December.

Foreign portfolio investments are commonly referred to as “hot money” due to the ease by which these flows enter or leave the country.

Central bank data showed gross outflows amounted to USD 1.6 billion in January, up by 3.9% from USD 1.54 billion in the previous month. It also jumped by 22.2% from USD 1.31 billion in the same month a year ago.

The United States accounted for more than a third of total outflows (34.9%) or USD 559.27 million.

Meanwhile, gross inflows rose by 25% to USD 1.32 billion in January from USD 1.06 billion in December. Year on year, inflows went up by 6.8% from USD 1.24 billion.

The bulk of investments (67.9%) were in peso government securities, while the rest (32.1%) went into Philippine Stock Exchange (PSE)-listed securities, mainly banks, transportation services, property, holding firms and food, beverage and tobacco.

Investments from the United Kingdom, Singapore, the United States, Ireland and Luxembourg accounted for 89% of the total foreign inflows in January.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the continued investment outflow may be attributed to US President Donald J. Trump’s trade policies.

“Markets priced in possible higher US import tariffs, trade wars, and other protectionist policies that would lead to fewer Fed rate cuts; slower global trade, investments, and overall global and local economic growth as a result,” he said.

Economies are anticipating the impact of Mr. Trump’s punitive tariff proposals. This could result in “tit-for-tat” retaliatory measures, which could lead to a widespread trade war.

Reuters reported Mr. Trump on Saturday ordered a new trade investigation that could heap more tariffs on imported lumber, adding to existing duties on Canadian softwood lumber and 25% tariffs on all Canadian and Mexican goods due next week.

The new tariff probe follows Mr. Trump’s order on Tuesday for a new Section 232 into copper imports, aimed at rebuilding US production of a metal critical to electric vehicles, military hardware and the power grid.

“However, Fed officials and the markets still on a wait-and-see stance on the impact of Trump’s tariffs and other protectionist measures on US inflation that could determine future Fed rate cuts that could be matched locally, going forward,” Mr. Ricafort added.

Financial markets now expect the Federal Reserve to resume cutting interest rates in June following a pause in January to give policy makers time to assess the economic impact of the administration’s policies, Reuters reported.

BSP Governor Eli M. Remolona, Jr. has said they are recalibrating their models to better take into account these “global trade uncertainties.” This after it delivered a surprise pause, opting to keep key rates steady at 5.75% at its meeting last month.

In 2024, the country posted a net inflow balance of USD 2.1 billion last year, a turnaround from the USD 248.84-million outflow in 2023.

Inward foreign investments registered with authorized agent banks include Philippine Stock Exchange-listed securities, peso-denominated government securities, peso time deposits with banks with minimum tenor of 90 days, other peso debt instruments, unit investment trust funds, and other instruments such as Exchange Traded Funds and Philippine Depositary Receipts.

“In addition, registration of said investments with the BSP, through the authorized agent banks, may not necessarily coincide with either trade or settlement date of the underlying transaction, and thus, such registration may be effected even after the actual foreign investment transaction has long been completed,” the central bank said. — Luisa Maria Jacinta C. Jocson with Reuters