PHILIPPINE DAILY INQUIRER - June 13, 2009

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'Hot' money inflows surged in May

MANILA, Philippines—The perception that the worst of the global economic turmoil has passed appears to have revived appetite for portfolio investments, with the Philippines registering a net inflow of foreign “hot money” in May, reversing the flight of portfolio capital reported the previous month.

According to the Bangko Sentral ng Pilipinas (BSP), $978 million worth of foreign portfolio investments flowed into the country in May, offsetting the $480 million that was funneled out in the same month.

The resulting net inflow of $498 million in May was a turnaround from the $276 million worth of net outflow seen in April.

The latest net amount of foreign portfolio investments was also a reverse of the $173.8 million in net outflow posted in May last year.

The country’s performance in attracting portfolio investments in May brought the total net inflow of foreign hot money in the first five months of the year to $276 million—a swing from the net outflow of $461 million in the same period last year.

“On the global front, confidence in the world economy rose as job losses in the United States continued to slow down and global production improved, reinforcing the growing perception that the crisis has bottomed out,” BSP Governor Amando Tetangco Jr.

Most analysts believe that the global economy’s recovery from the existing turmoil, described as the worst crisis since the Great Depression, is likely to be slow.

But according to Tetangco, the perception that the worst of the crisis has passed seems to have prompted some portfolio investors to start investing again.

Emerging economies like the Philippines are benefiting from the renewed confidence of portfolio investors, he said.

The central bank reported that 91 percent of gross inflows of hot money in May were placed in publicly listed companies, while the balance was invested in peso-denominated government securities. On the other hand, the gross outflow was mostly those withdrawn from bank deposits.

Monetary authorities said that if the revitalized confidence of foreign portfolio investors were to be sustained, the Philippine economy could maintain a surplus in its balance of payments (BOP). They said the Philippines so far found no need to borrow just to maintain a healthy level of external liquidity.

The central bank has projected that the country’s BOP for the year will likely register a surplus of $700 million.

BOP, a record of the country’s commercial transactions with the rest of the world, is the difference between inflows and outflows of foreign currencies to and from the economy. A surplus in the BOP increases the country’s total reserves of foreign currencies