Net ‘hot money’ inflows surge to USD 962 million in July

FOREIGN PORTFOLIO investments registered a net inflow for the second straight month in July, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.

Transactions on short-term foreign investments registered with the BSP through authorized agent banks posted a net inflow of USD 962 million in July, a turnaround from the USD 103.14-million outflow in the same month in 2022.

The net inflow in July was also significantly higher than the revised USD 280,000 net inflow in June.

These foreign investments are also known as “hot money” — called as such due to the ease by which these funds enter and exit an economy.

Based on BSP data, gross inflows hit $1.58 billion in July, 77.2% up from the $889.4 million in June. It was also more than double the USD 680.7 million in the same month last year.

The top five investor economies were the United Kingdom, the United States, Singapore, Luxembourg, and Germany, accounting for 85.7% of total foreign portfolio investment inflows.

About USD 996 million or 63.2% were invested in peso government securities, while about 36.8% went into Philippine Stock Exchange-listed securities of companies involved in banks, property, food, beverage and tobacco, holding firms, and transportation services.

On the other hand, gross outflows declined by 30.9% to USD 614.5 million in July from USD 889.1 million a month prior. Year on year, net outflows fell by 21.6% from USD 784 million. 

The BSP said the United States received USD 400 million or 65% of total outward remittances.

The surge in hot money inflows in July may be due to bullish investor sentiment in the country.

“Net inflows in July may be supported by increased interest in the country due to various reforms such as the passage of the Maharlika Investment Fund (MIF) and proposed green lanes for investments,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

In July, President Ferdinand R. Marcos, Jr. signed the law creating the MIF, which is the country’s first sovereign wealth fund.

Ms. Velasquez also said that easing inflation in the US drew more investments.

“This information likely encouraged investors to flock to emerging markets like the Philippines,” she added. 

For the first seven months of the year, BSP-registered foreign investments yielded a net inflow of USD 81.71 million, significantly lower than the USD 715-million net inflow in the same period last year.

“Moving forward though, we expected hot money to remain weak due to a very thin interest rate band with the Fed and live possibility of further interest rate hikes domestically and abroad,” Ms. Velasquez said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said concerns over the pace of the Fed’s tightening may continue to impact the direction of hot money flows for the rest of the year.

The BSP expects hot money to yield a net inflow of USD 2.5 billion this year. — Keisha B. Ta-asan