‘Hot’ money keeps flowing to Philippines

Published on Sunday, 02 December 2012 20:38

Written by Jun Vallecera / Reporter

INVESTORS continue to pour money into the Philippines in the form of portfolio investments no matter that such, also called “hot” or speculative money, slowed by 16 percent to only $3.16 billion on net basis as of mid-November.

Such flow helped boost foreign-buying activities at the Philippine Stock Exchange (PSE), where year-to-date purchases total more than P94 billion already on net basis.

The foreign buying also helped lift the stock market index to 5,640.45 or 29.01 percent higher from year to date.

In the week ending November 30, the bulk or 52 percent of transactions at the PSE was foreign, consisting of net sales of P728.45 million as foreign funds cashed in on their holdings for repatriation to principals abroad.

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This was a turnaround from the week before when net foreign buying aggregated P6.66 billion.

Data from the Bangko Sentral ng Pilipinas (BSP) show gross hot-money inflows of $15.77 billion in the first 46 weeks, up 6.1 percent from last year’s $14.85 billion.

Gross outflows accelerated by close to 14 percent to $12.61 billion from $11.08 billion, as rising yield on Philippine assets and dour earnings prospects overseas encouraged fund managers to cash in on the bonanza fueled in the main by the accelerated pace of growth in the country.

There is optimism in and out the halls of the BSP for hot-money flows to continue to pour inward in the final six weeks of the year and equal, if not surpass, last year’s hot-money inflows of $4 billion.

Benign inflation has helped convince monetary-policymakers to keep the rate at which the BSP borrows from or lends to banks steady where they are at present, rates considerably more attractive than those prevailing in the US, Japan or the euro-area countries where investment returns are at or close to zero percent.

The policy rates of the BSP stand at 5.5 percent for lending and 3.5 percent for borrowing, and seen persisting at this level over the next eight to 10 weeks by analysts at HSBC and by Moody’s Investor Service, for example.

The flow of hot-money funds has also helped the BSP fortify its foreign-currency reserves of more than $82 billion and well in excess of the country’s foreign-currency debts of just $62 billion.

Bank executives, such as Aurelio R. Montinola III of the Bank of the Philippine Islands and Pascual M. Garcia III of the Philippine Savings Bank, said the continued inflow of portfolio funds helped to accelerate bank-lending activities that continue to expand in double-digits as of latest.

Bank loans accelerated by 13.5 percent at end-September, pushed higher by production loans, which grew just a shade under 14 percent and benefiting wholesale and retail trade borrowers the most. Real-estate companies were some of the other borrowers that extracted the most benefits from liquidity-driven lending for the period.

In some countries such as China, massive inflows of foreign capital similarly helped drive its vigorous lending activities, lifted asset prices and caused the local currency the yuan to gain value relative to the US dollar.

In the Philippines the local currency the peso also benefited from continued foreign inflows, its value having risen 0.73 percent the past four weeks to P40.88 per dollar at the Philippine Dealing System.

Currency traders anticipate continued strengthening of the peso to P38.50 in under two months, according to traders at Banco de Oro, one of the country’s largest lenders.