Foreign fund managers have fled for safer havens and have, thus far, repatriated some $1 billion in
so-called portfolio funds, more known as “hot” or speculative money, in the first 10 months, putting at risk this year’s target portfolio inflows of at least $1.3 billion.
According to the Bangko Sentral ng Pilipinas (BSP), portfolio funds have been uprooted on net basis during the period and invested in places where the promise of returns are higher and certainly a lot safer than if the funds remained in the Philippines.
The bulk of the repatriated funds, a phenomenon known as capital flight in the investment community, went straight to the US, whose steadily improving economy, and the country’s largest trading and investment partner, has showed more signs of economic strength and recovery.
The BSP said registered foreign portfolio investments posted a net outflow of just under $180 million in October, sustaining last month’s net outflows of $324 million.
October’s net outflow was a reversal of the $969-million net inflows in the same month last year.
The outmigration of foreign funds in October helped magnify the 10-month outflow of portfolio money to $1.077 billion, and a steep reversal from last year’s $3.6-billion net inflows totaling $3.597 billion.
The central bank attributed the outmigration to the investors’ reaction on the International Monetary Fund’s downgrade of the 2014 forecast growth for the global economy and the continuing unrest in Hong Kong during the period. The central bank also cited the end of the quantitative-easing program of the US as one of the reasons behind the flight of capital to so-called safer havens.
The bulk, or 71.4 percent of the repatriated investments, was uprooted from the Philippine Stock Exchange in the form of investments in listed securities.
The foreign funds financed the purchase of equity stakes in holding firms, banks, property companies, telecommunications firms and utilities companies.
The rest of the investments were made in peso government securities and accounted for the remaining 28.6 percent.
The central bank named the United Kingdom, the US, Singapore, Luxembourg and Malaysia as the top 5 investment destinations for the month with a combined share of 83.3 percent of the total repatriations during the period.
According to the BSP, the US remained to be the top destination of the outflows during the period, receiving 72.3 percent of the total for the month.
The government earlier anticipated net inflows of $1.5 billion by the end of the year. To hit the target, the Philippines must attract $1.3 billion in the remaining months of the year.
The target foreign inflows, however, is subject to possible recalibration and retargeting this month.
The outmigration of foreign funds is a direct consequence of the end of the monetary stimulus, or quantitative easing program of the US, whose interest rate structure should soon lift and its regulators endeavor to ensure the resurgent strength of the world’s largest economy was not prematurely arrested.
Analysts have said the prospect of greater interest rate rewards in the US and other so-called safe havens have compelled foreign fund managers to recalibrate their exposure in emerging markets as the Philippines.
This development has also made US dollar-denominated instruments more attractive, weakening such regional currencies as the Japanese yen, Thai baht and the Philippine peso.