What are Hot Money in the Stock Market?

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To put it simply, these are the foreign investments inflow in Philippine Stock Market. They are so called hot money because they can be pulled out easily from the stock market. The top five foreign investors came from the US, the United Kingdom, Singapore, Luxembourg and Hong Kong. Data from the Bangko Sentral ng Pilipinas (BSP) showed that as of August 19, 2011 FPI or hot money yielded a net inflow of $3.065 billion, up 99.6 percent from $756.58 million a year ago. 


The stock market recently experienced downturns in the month of August. It went down heavily and small investors like me sweated profusely waiting for the chaos to stop. Thankfully, this week we have seen some upswing in the market and I think the bullish market is about to unfold. 


The bloody August we have experienced is because of the hot money pulled out from the stock market. The foreign investors got scared because they fear that US might go in recession again. Coupled with the US Debt downgrade and European Debt Crisis, foreign investors pulled out their money from the stock market.


Foreign investors are unlike the average Filipino investors; they (foreign investors) are not that concerned about the losses recorded as long as they can still get some value out of the market.


There is nothing wrong with the fundamentals of our stock market. The problem is most of us Filipinos do not know how to invest in the stock market. There is no real or new money coming into the market, particularly for long term investment. 


What drives the stock market right now are the hot money from foreign investors that have the funds to move the market.We’re part of the global economy so we really cannot limit our exposure to foreign funds. There is a limit of liquidity we can get from Filipino investors. So it is best to open our market to foreigners. It will actually help the economy as a whole because it means that investors have confidence in our economy and we should encourage them to come in and leave when they want. I think the important thing is to manage the inflow and outflow of foreign funds so that it doesn’t come in as hot money which will give the market a boost at one point and also expose the market to global risk.


http://www.manilatimes.net/index.php/business/6227-hot-money-inflows-nearly-double-halfway-through-august
http://www.philstar.com/Article.aspx?articleId=715842&publicationSubCategoryId=63