Foreign fund managers abandon Philippines as outflow hits record

Foreign fund managers have practically abandoned the Philippines as outflow of foreign portfolio investments or "hot money" from the country hit a record high.

In a press statement released on Friday, the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said that the net outflow of foreign "hot money" amounted to 640.84 million U.S. dollars in May this year, a huge reversal from the 106.28 million U.S. dollars in net inflow recorded in the same month last year.

For the month of May, outflows rose to 2.65 billion U.S. dollars while inflows totaled 2.01 billion U.S. dollars, resulting in the net outflow of 640.84 million U.S. dollars.

Analysts have said that the pullout of portfolio money not only from the Philippines but also from other Asian emerging economies, particularly Thailand and Indonesia, could be the offshoot of speculations that the U.S. Federal Reserve might soon end its stimulus program that had propped up the global market.

Reports of the improving job situation and retail sales in the United States have led to speculations that the U.S. Fed would soon end its bond purchase program, through which it injects enormous liquidity to help boost the U.S. economy.

The "bloodbath" in the local stock market on Thursday could further increase the total net outflow of "hot money" this month.

On Thursday, the main Philippine Stock Exchange index (PSEi) plunged 6.75 percent, or 442.57 points, to close at 6,114.08.

After hitting an intraday peak of 7,403.65 on May 15, the PSEi declined by 1,289.57 points, or 17.4 percent.

It was the worst day in the history of the local bourse.

The Philippine peso also hit a new record low closing at the 43. 00 peso level to the U.S. dollar in Thursday's trading.

On Friday, however, the PSE slightly recovered but the rebound by 128.18 points or 2.1 percent was negligible. The market closed at 6,242.26 on Friday.

Also on Friday, the Philippine peso slightly recovered to close at over 42 pesos to a dollar.

Earlier, a Philippine government agency also reported that during the first quarter, exports have contracted and the country' s unemployment rate went up.

In its press statement, the BSP said that registered investments for the month of May amounted to 2 billion U.S. dollars, rising by 31.6 percent from last year's 1.5 billion U.S. dollars.

The figure, however, was 42.8 percent lower than the 3.5 billion U.S. dollars recorded for April.

According to the BSP, in May, the United Kingdom, United States, Luxembourg, Singapore and Hong Kong were the top five investor countries with combined share of 85.5 percent.

The United States continued to be the main beneficiary of outflows from investments receiving 2.0 billion U.S. dollars.

Nonetheless, cumulative foreign portfolio investments in the first five months of 2013 stood at a net inflow of 1.58 billion U. S. dollars, up by 75 percent from the net inflow of 904.6 million dollars recorded in the same period last year, the BSP said.

The BSP also shrugged off concerns over volatility of the country's financial markets, describing the sharp drop in the stock market as "a healthy correction" and the depreciation of the peso back to the 43-to-a-dollar level as "tolerable."

BSP Deputy Governor Diwa Guinigundo said the decline in the PSEi should not be a cause for concern "as it was just the market' s way of correcting itself after equity prices reached high levels beyond 7,000 earlier this year."

Gunigundo said the BSP at the moment does not see any need to implement measures that will intervene in the way the equities market is behaving.

The depreciation of the peso is also good for Philippine exporters and millions of Filipino overseas workers who earn in U. S. dollars but spend their earnings in the Philippines in the local currency.

BSP Governor Amando Tetangco Jr. said that the country's favorable macroeconomic fundamentals would still help keep peso- denominated assets relatively attractive.

The Philippine economy grew by 7.8 percent in the first quarter of this year, the fastest in the region.

In 2012, the economy posted a 6.8 percent year-round growth. The economy is expected to grow between 6 percent to 7 percent this year.