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Inflation woes, slow vaccination trigger hot money exit in March

Inflation woes, slow vaccination trigger hot money exit in March

MANILA, Philippines — Fears over rising inflation and a sluggish vaccination program triggered an exodus of flighty foreign funds in March, the Bangko Sentral ng Pilipinas reported Thursday.

What’s new

Foreign portfolio investments yielded a net outflow of $541 million in March, BSP data showed. A net outflows means more short-term foreign funds exited the country against those that left.

That was larger than $40-million net outflows posted in February. In the first quarter, foreign portfolio investments recorded a net outflow of $483 million, albeit lower than $1.4 billion net outflows recorded when the health crisis erupted to pandemic proportions a year ago.

Why this matters

Also known as “hot money,” portfolio investments enter and leave markets with ease and are highly sensitive to both local and international developments. If risks emerge, foreign investors tend to immediately pull out their funds from the local market.

What the BSP say

In a statement, the central bank said developments that likely triggered March’s hot money flight include “rising inflation and vaccine rollout amid the surge in virus infection and reimposition of restrictions on mobility in the National Capital Region and nearby provinces.”

By the figures

  • Gross inflows amounted to $824 million in March, down 38.4% month-on-month. Figures showed about 90.5% of these new short-term bets were placed on publicly-listed companies while the rest were invested in government securities.
  • Those inflows, however, were trumped by $1.37-billion foreign funds that left during the month, with the US, a safe haven for investors, receiving 61.6% of total outflows. But on a month-on-month basis, March’s outflows eased by 1%.