BSP: $247 million net ‘hot money’ exited Philippines in 2023

Short-term foreign portfolio investments or “hot money” exited the Philippines in 2023 amidst a backdrop of uncertainties on the global economy and high interest rates environment, data released by the Bangko Sentral ng Pilipinas (BSP) on Thursday showed.

Foreign portfolio investments registered with the BSP are also called hot money due to the ease by which the funds enter and exit the markets.

These are mainly investments in 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.

BSP data showed foreign investments registered with the central bank from January to December 2023 yielded net outflows of $247 million.

This is a reversal from the $887-million net inflows seen in the same period in 2022.

In an emailed commentary, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the net “hot money” outflows seen last year could be attributed to higher global interest rates due to policy rate hikes since 2022 to help bring down still high inflation rates.

Ricafort added that the risk of economic slowdown or recession in the US, the world’s largest economy, as a consequence of aggressive Fed rate hikes as well as mostly softer economic data in China, the second biggest economy, in recent months could have caused the net outflow of short-term foreign investments last year.

The $247-million net outflows resulted from higher gross outflows of $13.1 billion against gross inflows of $12.9 billion.

Gross foreign “hot money” inflows in 2023 were 4.4% higher than the $12.3-billion level seen in 2022.

These investments were predominantly investments in PSE-listed securities at 57.3% mostly in banks, property, holding firms, food, beverage and tobacco, and transportation services.

The balance of inflows were invested in peso government securities at 42.7% and other investments at less than 1%.

The UK, US, Singapore, Luxembourg, and Japan were the top five investor countries during the year, with combined share to total at 83.5%.

Outflows, meanwhile, were higher by 14.6% compared to 2022’s $11.5-billion level.

The BSP said the majority or 95.1% of the outflows represented capital repatriation, while the remaining 4.9% pertained to remittance of earnings. 

The US continued to be the main destination of outflows with 63.6% of total, the central bank said.

“Net foreign portfolio investments data could still improve in early 2024 amid the continued US/global and local financial market gains since November 2023 amid market expectations of a possible Fed rate cut as early as March 2024 or May 2024, as well as possible Fed rate cuts of more than -1.30 percentage points for 2024, which could be matched locally as a major leading indicator for the Philippine economy and financial markets for the coming months,” Ricafort said. — BM, GMA Integrated News