‘Hot money’ exits PHL amid Delta fears

By Luz Wendy T. Noble, Reporter

MORE FOREIGN PORTFOLIO investments (FPI) left the Philippines in July, as the spread of the more contagious Delta variant of the coronavirus disease 2019 (COVID-19) spooked investors.

“Hot money” — dubbed as such due to the ease by which these funds enter or leave an economy — posted a net outflow of $339.7 million in July, ending two straight months of net inflows, according to data released by the Bangko Sentral ng Pilipinas (BSP) on Thursday.

This is smaller by a fourth than the $453.17-million net outflow a year ago, but a reversal from the $334.51 million net FPI inflow posted in June.

July’s net outflow is also the biggest in three months or since the $373 million in April.

For the first seven months of 2021, short-term foreign investments yielded a net outflow of $446 million, 88% lower than the $3.8-billion net outflow during the same period a year ago.

The BSP in a statement said investor sentiment was affected by the rise in COVID-19 cases due to the Delta variant, supply issues hampering the vaccine rollout, and the subsequent announcement of stricter lockdown measures for August.

Even though an uptick in COVID-19 infections was seen in July, Metro Manila was only placed under an enhanced community quarantine (ECQ) from Aug. 6 to 20.

The BSP also noted that Fitch Ratings last month lowered its outlook for the Philippines from “stable” to “negative,” which means there is a possibility that the investment grade “BBB” rating could be downgraded in the next 12 to 18 months.

Market sentiment has turned more cautious, with investors seeking safe havens due to political tensions in Myanmar and Afghanistan, said Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez.

“The case is not isolated because it happens to the rest of the world but more pronounced in a small market like the Philippines,” Mr. Lopez said in an e-mail.

BSP data showed FPI inflows in July inched up 1.48% to $729.77 million in July, but dropped 65.3% from the $2.105 billion in June 2020.

Top investors during the month were from the United Kingdom, United States, Singapore, Norway, and Luxembourg, making up 77.1% of the inflows.

About 64.4% of the investments went to securities listed in the Philippine Stock Exchange such as property companies, holding firms, food, beverage and tobacco companies, banks, and transportation services. More than a third (35.6%) were invested in peso government securities.

On the other hand, outflows fell 8.7% year on year to $1.069 billion in July, which was also 39.6% lower than the $1.771 billion in the previous month.

The central bank projects hot money to yield a net inflow of $5.5 billion this year.

Hot money in August will likely continue to yield a net outflow given the renewed restriction measures, Security Bank Corp. Chief Economist Robert Dan J. Roces said.

“With the reimposed enhanced community quarantine and a risk-off tone, we expect outflows to persist in the August data, much like it did in March and April earlier this year. This should also cause some weakness to the peso,” Mr. Roces said in a Viber message.

Metro Manila is currently under a modified ECQ until end August.

On the other hand, Mr. Lopez is hopeful that investors will also consider the fact the country’s recession ended in the second quarter, saying it is “indicative of the local economy’s stability.”

The economy exited recession after growing by an annual 11.8% in the second quarter, but slipped by 1.3% quarter on quarter.

First-half growth was at 3.7%, which was still below the government’s newly revised 4-5% full-year target.

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