‘Hot money’ outflow worse than expected

MANILA, Philippines - More foreign investments in local stocks, government securities and bank deposits went out of the country than in for the whole of 2008, as the global financial turmoil dampened investor sentiment, the central bank said. Data released Thursday by the Bangko Sentral ng Pilipinas (BSP) showed that foreign portfolio investments — or so-called "hot money" — posted a net outflow of $1.39 billion by the end of last year, a sharp reversal from net inflows amounting to $3.52 billion in 2007 and worse than the BSP’s projection of $700 million in net outflows for 2008. "The global financial turmoil, which was precipitated by the US subprime mortgage crisis, has led to recession in many countries across the globe and heightened risk aversion among investors," BSP Governor Amando M. Tetangco, Jr. said in a statement. Foreign portfolio investments are placed in local stocks, government securities, money market instruments and bank deposits. These are loosely refered to as "hot money" due to the speed at which they are invested in and taken out of an economy. Gross inflows for the year reached $8.3 billion, 46% less than the $15.54 billion booked in 2007. Funds placed in shares at the Philippine Stock Exchange (PSE) reached $5.7 billion, down 54% compared to year-ago levels, while investments in peso-denominated government securities were recorded at $2.1 billion, 27% lower than the end-2007 level. Investments in peso time deposits grew by 142% to $571.2 million, while investments in money market instruments grew by 282% to $4.9 million. The United Kingdom, Singapore and the US were the top three investor countries, accounting for 70% of the registered portfolio investments during the year, the BSP said. On the other hand, gross capital outflows amounting to $9.7 billion reflected a 19% drop from the $12 billion in 2007. Repatriations of investments in listed shares, which comprised 35% of the total outflows, went down by 41% to $3.4 billion. Investments in government securities, which accounted for 23% of the total, also dipped by 9% to $2.2 billion. Investments in money market instruments, which accounted for 1% of the total, declined by 73% to $5.3 million. Outflows due to withdrawals of investments in peso bank deposits increased by 6% to $4.1 billion. The central bank expects both foreign direct investments and "hot money" inflows to be even lower this year, as global financial markets bear the brunt of the crisis, prompting investors to hold off decisions. — Gerard S. dela Peña, BusinessWorld