Hot money, hot Pinoy seafarers (were you thinking of hot Pinoy hunks? Tsk tsk), hot business opportunities in medical tourism – everything’s hot today except the weather. We are expecting another typhoon…sigh. It’s always like that before or after my birthday. EVER since I was born 21 years ago. (Did you just do a double take?)
The Philippines attracted $274 million net “hot money” last October, the Philippine Daily Inquirer reported today. That’s quite a huge jump from $35.8 million in September, and totally deserves a blog post.
In this post, I wrote that hot money refers to short-term investments by foreign investors in local stocks, bonds and money market instruments. While they influence the local financial market, we need to remember that they are very speculative and can leave our shores at the touch of a button. The long-term growth of our stock and bond markets, in fact, will depend on whether domestic investors (that’s you, me and our OFW friends and relatives abroad) will begin to invest in the domestic market. Policy-makers hope a wider base of domestic investors will not be as jumpy as foreigners.
The dual citizenship act passed three years ago has made this possible for Filipinos who have American passports. The Bureau of Immigration says nearly 43,000 Filipinos have reacquired Filipino citizenship so they could invest in assets like real estate and businesses. The government is saying they are making it easier for those who want to get dual citizenship status.
Back to hot money, Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. says we can thank the recent rate cut, higher growth forecasts for the Philippines by the International Monetary Fund and easing concerns about the US economy and good third quarter corporate results for the surge of money that came in last month. Could it also be that foreign investors are looking for other alternatives to the US and European markets, which are knee-deep in subprime problems? Could the Philippines be benefiting from that trend?
Markets took another dive earlier this month due to fresh fears on the subprime issue, making it only prudent to consider how this drama will play out in the lives of ordinary Filipinos. I find the article of Michael Lim, a professor and investment banker by profession, in this page very clear to understand and explains adequately the roots of the subprime mortgage problem and what it means for the Philippine economy.
Markets continue to be “shaken but not stirred” was the analysis from Sunlife’s top investment guy, Michael Manuel. Former socioeconomic planning secretary Cielito F. Habito said in an interview with MoneySmarts last Friday it can bring storm clouds but he didn’t seem overly concerned. The local banking sector is not that exposed to collateralized debt obligations, so a systemic crisis is out of the question. The US economy is largely expected to go under a recession, but that’s not news either. As I was just wrapping up this blog post, I received the monthly Market Call issue from the First Metro Investment Corp. and UA&P Capital Markets Research Center, which pointed out that despite the scare from Citigroup and Merill Lynch that Philippine sovereign bonds remained stable (they call them ROPs in stuffy business circles). It said any weakness in the stock market this month would be a buying opportunity.
The biggest threat most experts still see is how remittances will be affected by the US recession. When money gets tight in their US homes, will they send less money to their Philippine recipients? By the way, this picture below is a Mercedes customised with fake diamonds shown during the Los Angeles Auto Show last November 14 (Photo from AFP). Doesn’t feel very recession-like, this photo.
As I went around asking experts’ opinions, one thing and one thing only became clear: people are guessing and they don’t have a choice. In fact, Habito says there is no way of really knowing. No one knows how deep this thing will go. There is no systematic way of measuring how many Filipinos in the US are suffering from the slump in home values and whether they are still sending money to the Philippines. No one knows…and that’s not because everyone is stupid. (Voice drops to a low whisper). There is no way to know. (Nuninuninu). Doesn’t that scare you?
So, what do we do? Should we keep all our money in cash? Or gold, or silver and other “recession” commodities that will hold value better in the long run?
In a conversation I had with Reyna Elena last week, I saw first-hand how resilient Filipinos are. We may rant and rave at the latest depressing trends, we may complain about how the dollar is faring and how OFWs from the US are paying more in dollars to send the same amount of money home. Imagine how we will cope if gas prices go up to P50 by the end of the year? Good thing the appreciating peso has tempered the rise of gasoline prices here but of course, that doesn’t lessen the pain for OFWs very much.
We may think the Philippines is one of the dirtiest, most bureau-crazy place we have ever lived in. But we still smile through the smog and live through the turmoil. US recession and all, many are still happily hoping to be a nurse somewhere isteyt-side. At the same time, retirees are busily preparing to come home for a taste of the balmy islands (ignoring all news from Malacanang). You can’t deny it, the Philippines is beautiful.
Something tells me we’ll live through these new storm clouds too.
PS. It’s easy now to know which articles in INQUIRER.net get the most hits. Click on the MOST READ icon and you will see the top ten stories in each channel. The article “Early retirement windfall whittles away in time deposit” was on the list for one whole week!
Time deposits have their uses like keeping your money safe and liquid and easy to withdraw. They are also one of the cheapest sources of cash for banks, so very few banks offer other deposit instruments. But truth is, they are just savings instruments, not investments.
November 20th, 2007 at 6:12 am
The outlook is uncertain. The rush of hot money in October may also spell trouble in the months ahead. Hot money flowed in on expectation that the peso will continue to appreciate on the back of strong remittances. It is likely that remittances may slow down because of diminishing home equity values as you stated, but also because the cost of living in the US is rising. Because of the weak US dollar, commodity prices are at record levels. Food and energy are becoming more expensive. Once remittances slow down, hot money will unwind their positions here, and the peso will begin to weaken. Then we feel the impact of $94 oil!
On the home front, this government is desperately dependent on a bull market. First as a source of spin to its press releases about the economy. Second and more importantly, because it needs to sell its stake in Meralco, San Miguel etc to plug its budget deficit. Now who would want to sell at bargain prices? The fiscal turnaround crumbles.
Another engine of our economic growth is faltering. The BPO industry is reeling from the impact of the strong peso and the slowdown of US consumer demand.
The rebirth of our mining industry is probably our saving grace. The prices of metals and other commodities are going up in nominal terms because they are priced in terms of a weak US dollar. But for countries with strong currencies, they are still cheap. Even if the US slows down, huge surpluses in Asia, ME, Brazil etc can be used to finance domestic infrastructure projects. These countries can spend their way out of a global economic rut. We can still benefit from a commodities boom.
Our energy sector continues to attract foreign investments. Money is flowing into oil exploration and power plants. Why? Napocor assets and service contracts for
oil exploration are priced in cheap US dollars!
There are balancing factors after all.