Foreign portfolio investors out to make quick money know exactly when and where to park their funds. They constantly shift their investments by quickly cashing in on short-term gains. Their investments can be in the form stocks, currencies, short-term government securities and time deposits.
Foreign portfolio investors have lately been trooping back to the Philippines after pulling out of the country last year. This type of foreign investments, also known as hot money, lifted the local stock market to a two-year high last week and greatly strengthened the peso against the US dollar.
Net investments surged 12 times in the first two months of the year to $309 million from just $23 million in the same period last year. Bangko Sentral said investments in February alone swung to a net inflow of $139 million from a net outflow of $199 million year-on-year. The February data followed a $170-million net inflow in hot money registered by the bank in January.
“Net inflows were sustained due to news on higher export earnings, in spite of jitters about the coming elections and recent sovereign debt concerns in some European countries,” Bangko Sentral said.
Deputy Gov. Diwa Guinigundo earlier said the global economic recovery was encouraging investors to take a second look at emerging markets such as the Philippines. Top sources of hot money during the two-month period were the United Kingdom, the United States, Malaysia, Luxembourg and Singapore.
Foreign investors apparently have found good reasons that whetted their appetite for risky assets in emerging markets like the Philippines. Their investments in Philippine stocks and securities indicate their confidence on the ability of the economy to bounce back from its lethargic state in 2009 and provide them with short-term profits.
Hot money come and go, depending on the fundamentals and prospects of the host economy. Such funds are not the same as direct foreign investments, which stay for the long-term period and contribute to the gross domestic product. But they provide the lead to foreign capitalists in search of business opportunities and a fair return on their investments.
