By Katherine K. Chan, Reporter
THE PHILIPPINES saw short-term foreign investment inflows drop sharply in July amid persistent volatility, central bank data showed.
Transactions on foreign investments registered with the Bangko Sentral ng Pilipinas (BSP) through authorized agent banks yielded a net inflow of $66.47 million in July, plunging by 91.05% from $742.56 million a year earlier.
Month on month, this was 60.93% lower than the $170.12-million net inflow in June.
Still, July marked the third month in a row that foreign portfolio investments (FPIs) posted a net inflow.
FPIs are also referred to as “hot money” due to the ease with which these flows enter or leave the country.
Based on BSP data posted on its website, gross outflows of hot money jumped by 33.21% year on year to $2.301 billion in July from $1.727 billion. However, it declined by 16.99% from the $2.772-billion outflows in the previous month.
On the other hand, total hot money inflows amounted to $2.368 billion during the month, declining by 4.15% from $2.47 billion a year prior and by 19.53% from $2.942 billion in June.
Lingering volatility in global markets likely kept foreign investors cautious about channeling funds into short-term investments in the country, analysts said.
“Foreign portfolio investments posted a third straight month of net inflows in July, although the pace slowed significantly to $66.47 million from $170.12 million in June, indicating that foreign investors remained selectively constructive on Philippine assets despite a more challenging global environment,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said via Viber.
SM Investments Corp. Vice-President and Group Economist Robert Dan J. Roces also attributed the reduced FPI net inflows in July to the local currency’s volatility.
“The third straight month of inflows is a positive sign that foreign investors continue to see value in Philippine assets, supported by improving growth prospects and attractive yields,” he said in a Viber message. “The smaller July inflow, however, shows that investors remain cautious amid global uncertainty and peso volatility.”
Soaring oil prices amid renewed conflict in the Middle East reignited safe-haven demand for the greenback in July, dragging the peso to as low as P61.847 per dollar.
The local unit stood at an average of P61.5963 versus the dollar in July, about 8.54% or P4.844 weaker than the P56.7523 recorded a year ago, according to BSP data.
Most or $86 million of the net inflows in July were recorded in investments in Philippine Stock Exchange (PSE)-listed securities, a turnaround from the $141-million net outflow in the same month last year.
Meanwhile, investments in peso-denominated government securities reversed to a net outflow of $20 million from the $880-million net inflow a year earlier.
Still, Mr. Asuncion noted that the sustained hot money net inflow signals investors remain optimistic about Philippine financial markets despite global and domestic headwinds weighing on their risk appetite.
“The continued inflow likely reflected pockets of opportunity in local financial markets, supported by still-resilient domestic economic activity and investor search for returns, even as concerns over global growth, geopolitical tensions, elevated oil prices, and inflation risks tempered risk appetite,” he said.
SEVEN-MONTH HOT MONEY
In the seven months to July, net outflows of hot money reached $3.938 billion, larger than the $2.285-billion outflows a year earlier.
Combined gross outflows grew by an annual 60.82% to $19.546 billion in the seven-month period from $12.154 billion a year ago. Total inflows went up by 8.1% to $15.608 billion as of end-July from $14.439 billion a year earlier.
Broken down, foreign investments in government securities posted a net outflow of $2.213 billion in the period ending July, a reversal of the $3.742-billion net inflow seen a year prior.
Meanwhile, hot money outflows in PSE-listed securities amounted to $1.728 billion as of July, higher than the $1.461-billion outflows recorded in the previous year.
Analysts said FPI flows will likely remain volatile for the remainder of the year as global uncertainty continues to cloud the investment climate.
“Looking ahead, foreign portfolio flows may continue to swing between inflows and outflows depending on global market developments and investor sentiment,” Mr. Asuncion said.
“While the Philippines remains on investors’ radar, flows are likely to stay measured and selective as markets navigate heightened uncertainty and a more complex interest rate and inflation environment.”
For Mr. Roces, the Philippines needs to attract more short-term foreign investments to strengthen its financial stability and buoy the peso.
“We expect flows to remain uneven, but continued inflows would help support financial stability and the peso, which ultimately matters to businesses and consumers through more stable borrowing costs and prices,” he said.
In August, the peso breached the P62 handle for the first time as it plunged to a new all-time low of P62.265 against the dollar on Friday.
BSP Governor Eli M. Remolona, Jr. earlier said that the “exchange rate itself is something very hard to fix for a country like the Philippines.”
The BSP projects FPIs to post a smaller net inflow of $1.8 billion this year from the $3.7-billion total estimated net inflows in 2025.
“The Philippines remains fundamentally attractive, but foreign portfolio flows will continue to ebb and flow with global risk appetite,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., also said via Viber.
“The key is that our macroeconomic story remains intact, which should help sustain investor interest over the medium term.”