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Friday, April 12, 2024

Hot money inflows up 214%, but risks cited

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HOT money inflows surged in January on the back of investments in the Philippine Stock Exchange (PSE)-listed as well as government securities, according to the Bangko Sentral ng Pilipinas (BSP).

Data from the BSP showed that net hot money inflows reached $292.12 million, a 214.1-percent growth from December 2022 and a 1,900-percent increase from January 2022.

The BSP said net inflows reached $92.95 million in December 2022 while inflows were at $14.6 million in January 2022.

“Majority of investments or 62.8 percent registered were in PSE-listed securities—investments mainly in banks, holding firms, property, food, beverage & tobacco, and electricity, energy, power & water,” the BSP said.

“The remaining went to investments in Peso government securities [or] 37.2 percent and in other instruments [at] less than 1 percent,” it added.

Investments for the month mostly came from the United Kingdom, United States, Singapore, Luxembourg and Hong Kong, with combined share to total at 83.8 percent.

Risks ahead

“However, for the coming months, offsetting risk factors include higher prices/inflation, higher interest rates, higher Fed rate peak/terminal rate amid slower-than-expected easing in US inflation gauges in the quest to bring down US inflation to the Fed’s target of 2 percent,” Rizal Commercial Banking Corporation Treasury Group Chief Economist Michael L. Ricafort said.

“[There is also the] risk of recession in the US, the world’s largest economy, amid continued Fed rate hikes since March 2022, complicated economic reopening narrative in China, the world’s second biggest economy, and geopolitical risks—US-China tensions, continued Russia-Ukraine war, North Korea missile tests, among others,” he added. 

Meanwhile, BSP data showed gross inflows at $1 billion represented an 8.1-percent decline from December and was 37.25 percent higher than January 2022. The US received 69.4 percent of total outward remittances.

Year-on-year, registered investments in January 2023 increased by 37.3 percent or by $272 million from the $731 million recorded in January 2022; while gross outflows is slightly lower by 0.7 percent or by $5 million than the outflows recorded for the same period last year, at $717 million.

The BSP said these investments refer to inward foreign investments registered with Authorized Agent Banks (AABs).

These are PSE-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.

The BSP said the registration of inward foreign investments delegated to AABs is optional under the rules on foreign exchange (FX) transactions.

It is required only if the investor or its representative will purchase FX from AABs and/or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of earnings that accrue on the registered investment.

Without such registration, the foreign investor can still repatriate capital and remit earnings on its investment but the FX will have to be sourced outside the banking system.

Image credits: Patrick Roque via Wikimedia Commons CC BY-SA 4.0

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