Recession protracted, new lockdowns send ‘hot money’ initially in April

Ian Nicolas Cigaral (Philstar.com) – May 28, 2021 – 10:42 p.m.

MANILA, Philippines – A protracted economic contraction following further lockdowns in the capital and neighboring provinces fueled a short-term outflow of foreign funds in April, the Bangko Sentral ng Pilipinas reported Thursday.

What’s up?

Foreign portfolio investments, also known as “hot money” due to their volatile nature, saw a net outflow of $ 374 million in April. A net outflow means that more of these short-term funds have left the country than those that have entered.

But that was smaller compared to the net outflow of $ 541 million recorded the previous month. In the first four months, hot money saw a net outflow of $ 857 million, much lower compared to the net outflow of $ 2 billion a year ago, when pandemic restrictions were the most important. more stringent.

Why is this important

Foreign portfolio investments enter and leave markets easily and are very sensitive to local and international developments. If risks arise, foreign investors tend to withdraw their funds immediately from the local market.

What the BSP says

In a statement, the BSP said the developments that likely sparked last month’s capital flight were “a reduction in inflation, the contraction of the country’s gross domestic product in 2020, the extension of local quarantine measures. , the progress of the government’s immunization program and the continued increase in infections in the countryside. “

What an analyst says

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said a significant drop in new coronavirus cases in the country could help reverse months of net outflows.

“If new COVID-19 cases are further reduced after strict quarantine standards for 1.5 months in NCR Plus, alongside the arrival and deployment of more COVID-19 vaccines … it could lead to an increase in-country investment valuations as well as better clear data on foreign portfolio investment, ”he said in an emailed comment.

Other figures

  • Gross inflows in April fell 21% month over month to $ 651 million. BSP data showed that about 68.9% of these inflows were invested in publicly traded companies active in real estate, banks, holding companies, food, beverage, tobacco and retail. transport.
  • But these were offset by net outflows of $ 1 billion, but down 24.9% month over month. The United States, seen as a safe haven for investors, received 72.8% of the hot money coming out of the country.

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