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Hot money continues retreat amid turmoil

By Ruben Hortelano

10/03/2008

Foreign short-term capital or so-called hot money posted a net outflow of $446.29 million in the year to September from a net inflow of $3.324 billion during the same period a year ago, Bangko Sentral ng Pilipinas (BSP) data showed.

Analysts said the latest data indicated the violatility of foreign funds as a result of the financial turmoil in the United States that had spread to Europe.

BSP data showed a net inflow of portfolio funds in August totaling $187.52 million or the difference from outflows of $552.97 million against $740.49 million inflows.

For the year until Sept. 21, however, outflows totaled $7.335 billion while gross inflows totaled only $6.889 billion, BSP data showed.

Hot money is mainly invested in the equities market and debt papers which are considered fleeting since these are usually pulled out at the first sign of trouble.

BSP Gov. Amando Tetangco Jr. said the financial turmoil in the US arising from the uncertain legislative support on the proposed $700-billion financial bailout package continues to drive fund managers out of emerging markets like the Philippines and back to safer havens in their home turfs.

BSP Deputy Gov. Nestor Espenilla had said the lack of support for a bailout of troubled US financial icons will result in the erosion of assets worth $1 trillion.

Espenilla said the consequent credit crisis in the US, and its impact worldwide, entail costs that regulators like the BSP hope should encourage US legislators to act favorably on the proposed bailout package.

Nevertheless, he said the exposure of Philippine banks to the credit-linked notes bought and sold like proverbial hotcakes by some of the titans in US finance has only been very minimal.

The exposure is believed to equal no more than one percent of the aggregate asset base of local banks, or only around P50 to P60 billion, which was something the banks could easily absorb without toppling over, he claimed.

Still, the BSP continues to monitor the banks as they maintain alert status for any sign of stress or contagion, Espenilla said.