‘Hot money’ outflows narrow in March

FOREIGN CAPITAL left the Philippines for a second straight month in March, although significantly less than in February, amid turmoil in the global banking sector. 

Data from the Bangko Sentral ng Pilipinas (BSP) showed transactions on foreign portfolio investments registered with the central bank through authorized agent banks posted a net outflow of USD 70.26 million in March.

This is significantly smaller than the USD 531.27-million net outflow in February and USD 305.08-million net outflow in the same month last year.

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

BSP data showed gross inflows stood at USD 1.26 billion, up by 84.7% from the USD 679.96 million in February. Year on year, gross inflows slipped by 1.7% from USD 1.28 billion in the same month in 2022.

The bulk or 64.6% of investments went into Philippine Stock Exchange (PSE)-listed securities, mainly in banks, property, holding firms, food, beverage and tobacco and transportation services.

“The remaining went to investments in peso government securities (35.4%) and in other instruments (less than 1%),” it added.

Majority of total foreign inflows (86.4%) came from the United Kingdom, the United States, Singapore, Luxembourg, and Norway.

Meanwhile, gross outflows rose by 9.5% to USD 1.33 billion in March, from USD 1.21 billion in the previous month. Year on year, gross outflows declined by 16.2% from USD 1.58 billion a year ago.

The BSP said that 67.2% of total outward remittances went to the United States.

For the first three months, hot money yielded a net outflow of USD 309.42 million, wider than the USD 65.3-million net outflow in the same period a year earlier.

“Heightened risk-off tone dominated markets in March after concerns about the banking system spiked due to the shutdown of US banks. This in turn spurred outflows for regional investors,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

In March, the global banking sector was thrown into turmoil after the collapse of Silicon Valley Bank (SVB) and Signature Bank, and the crisis of confidence in Credit Suisse. SVB was said to be the biggest US bank failure since the 2008 global financial crisis.

“Heightened financial uncertainty amid the banking woes in the West likely drove investors to relatively more stable markets such as the Philippines,” China Banking Corp. Chief Economist Domini S. Velasquez added in a Viber message.

However, she noted the domestic banking sector’s strong position and signals of slower tightening by the US Federal Reserve may have led to the slower pace of hot money outflows.

“Moving forward, possible recessions in advanced economies may drive investments towards emerging markets. A strong gross domestic product (GDP) performance and the Fed ending its tightening soon could also lead to positive market sentiments,” she added.

The Development Budget Coordination Committee expects first-quarter GDP to be “closer” to 7.1% in the fourth quarter. This would be within the government’s 6-7% target, but below the 8.2% in the first quarter of 2022.

The local statistics authority is set to release first-quarter GDP data on May 11.

The BSP expects foreign portfolio investments to end the year at a USD 2.5-billion net inflow. This is lower than the USD 5-billion forecast given in December. — By Luisa Maria Jacinta C. Jocson