Iran war spoils ‘hot money’ momentum
Fickle foreign funds had returned to the Philippine capital market in February before intense volatility from the Middle East crisis sent local equities tumbling, government bond yields rising and peso sliding to consecutive record lows.
Data from the Bangko Sentral ng Pilipinas showed that foreign portfolio investment (FPI) inflows registered with the central bank had exceeded outflows by $283.7 million for the month.
That marked a reversal from January’s net outflow of $1.1 billion, trimming the two-month net loss to $849.6 million.
But compared with a year earlier, the net inflow was down by 38 percent. Such investments, often referred to as “hot money,” are prone to swift reversals at the first sign of unfavorable conditions. These funds—often invested in liquid instruments like stocks and bonds—are far more sensitive to shifts in domestic and global sentiment than foreign direct investments, which tend to stay for longer term and are more closely tied to job creation.
By type of instrument, government securities—including Treasury bonds and Treasury bills—posted a net inflow of $254 million in February, a turnaround from $966 million net outflow in the preceding month.
Data showed the benchmark yield for 10-year government securities settled below 6 percent for most of February, after staying above that level for months when a major corruption scandal sapped confidence.
Governor Eli Remolona Jr. earlier took this as one of the signs of confidence was slowly returning.
Meanwhile, local equities saw a hot money net inflow of $27 million, reversing January’s $168 million net outflow.
The Philippine Stock Exchange Index ended February at 6,611.24, up 4.5 percent month-on-month.
Foreign investors bought P9.66 billion more than they sold in the local stock market, though this was down from P16.58 billion in net purchases in January.
Overall, these inflows then helped strengthen the peso, as foreign inflows into stocks and a weaker US dollar supported the currency.
But the situation changed dramatically after the United States and Israel launched operations in Iran, leading to the closure of the Strait of Hormuz, a vital shipping lane for 20 percent of the world’s oil supply.
The conflict and the fears it created for oil-importing economies like the Philippines have since pushed the main stock index below 6,000 and sent the peso past the 60-per-dollar mark.
The rate for 10-year debt in the secondary market has risen to nearly 7 percent.
Looking ahead, the central bank now expects total FPIs—including transactions not registered with the BSP—to post a net inflow of $3.7 billion in 2026, lower than its previous estimate of $5.6 billion.
Registration of inbound portfolio flows is optional and applies only to investors who purchase foreign exchange from local banks when moving their funds.
