The Philippine financial market is facing renewed pressure as foreign investors withdraw billions of dollars amid rising geopolitical tensions, increasing inflation, and a weakening peso.
In the first eight months of 2026, foreign portfolio investments recorded a net outflow of approximately $4.25 billion, reversing the $4.58 billion in net inflows recorded during the same period in 2025.
The withdrawal reflects growing concerns about the global economic environment and the risks facing emerging markets. Investors have become more cautious as renewed tensions between the United States and Iran threaten oil supplies, push energy prices higher, and increase uncertainty in financial markets.
According to data from the Bangko Sentral ng Pilipinas (BSP), August recorded a net foreign portfolio investment outflow of $315 million. This ended three consecutive months of net inflows in May, June, and July.
The August result also marked a sharp reversal from the $2.3 billion in net inflows recorded in August 2025. The latest figures highlight how quickly foreign investors can change their investment decisions when economic and political conditions become uncertain.
What is Hot Money? Understanding Foreign Portfolio Investments
Hot money refers to foreign funds invested in financial assets that can be moved quickly between markets depending on investment opportunity, economic conditions, and changes in investors’ confidence.
Unlike foreign direct investments, which generally involve long-term business operations, hot money is often placed in liquid financial instruments. Investors may enter a market to earn returns and withdraw their funds when risks increase or better opportunities appear elsewhere.
In the Philippines, foreign portfolio investments registered with the BSP through authorized agent banks may include:
- Listed stocks
- Government securities
- Time Deposits
- Other financial instruments
Hot money can benefit the economy by increasing demand for local stocks and bonds, supporting financial market activity, and helping businesses and the government access investment capital.
However, these investments can also create risks because sudden withdrawals may put pressure on the peso, reduce stock prices, and increase volatility in the bond market.
The recent outflows demonstrate why foreign portfolio investments are sensitive to changes in global sentiment. When investors become concerned about inflation, interest rates, or geopolitical conflicts, they may move their funds to markets they consider safer.
Middle East Tensions Drive Oil Prices and Inflation Concerns
The renewed withdrawal of foreign funds coincided with heightened tensions in the Middle East.
According to Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), investors pulled funds from domestic assets following the expiry of the two-month truce between the United States and Iran in mid-August.
The development increased concerns about renewed military confrontations and possible retaliatory attacks involving critical oil infrastructure.
These risks contributed to higher global oil prices. Brent crude, an international benchmark for oil, rose above $100 per barrel and remained above that level from early September, increasing concerns about the cost of energy and imported goods.
The Philippines, which relies heavily on imported fuel, is directly influenced as expensive oil can affect transportation, electricity generation, manufacturing, and food distribution. Businesses may face higher operating expenses, while households may need to spend more on essential goods and services.
Inflation has also become a major concern. After a period of easing price increases, the country’s inflation rate reached 7.2% in September, its highest level in five months. This matched the more-than-three-year high recorded in April at the onset of the war.
Ricafort also warned that elevated oil prices, a depreciating peso, and the potential effects of a strong El Niño could make inflation more persistent. These pressures could increase the cost of imports and create additional challenges for consumers and businesses.
Foreign Investors Sell Philippine Stocks and Government Bonds
The withdrawal of foreign capital affected both the stock market and the government securities market during the first eight months of 2026.
BSP data showed that government debt securities recorded net outflows of $2.28 billion, while listed Philippine stocks registered net outflows of $1.98 billion. This represented a reversal from the same period in 2025, when government securities attracted $6.12 billion in net inflows, more than offsetting $1.54 billion in net outflows from listed stocks.
August figures further illustrate the change in investor sentiment. Foreign investors withdrew a net of $63 million from government securities, reversing the $20 million in net inflows recorded in July. Meanwhile, foreign investors sold $253 million more in Philippine stocks than they purchased, compared with a net inflow of $86 million in the previous month.
The Philippine Stock Exchange index declined by 4.5% in August, closing at 5,956.33 points. The decline came amid the BSP’s policy rate increase, the peso’s depreciation to a record low, and successive downgrades to the country’s economic growth outlook by multilateral institutions.
For the first eight months of the year, net foreign selling of Philippine equities reached ₱20.86 billion. Although substantial, this was lower than the ₱45.43 billion in net outflows recorded during the same period in 2025.
These figures indicate that investor caution extends across major financial assets. Higher bond yields, uncertain economic growth, and currency risks can make Philippine investments less attractive, particularly when global investors have other markets to consider.
Possible Sources of New Investment and the Outlook for 2026
Despite the outflows, several developments could help attract foreign capital back into the Philippine financial market.
The government’s retail treasury bond (RTB) offering carries a gross coupon rate of 6.875%, potentially attracting investors seeking competitive returns. Foreign investors who participate may bring in US dollars and convert them into pesos to purchase eligible peso-denominated investments.
Moreover, the nearly $1-billion initial public offering (IPO) of Mynt Inc., the operator of GCash, could attract investor interest. If its overallotment option is fully exercised, the offering could become the country’s largest IPO.
The inclusion of peso-denominated bonds in the influential JPMorgan Chase & Co. Government Bond Index-Emerging Markets (GBI-EM) could also encourage additional investment in local government securities.
Ricafort said the index inclusion could “lead to more foreign investments into the local bond market,” offering a potential source of support amid recent withdrawals.
However, these developments may not be enough to offset the effects of continued geopolitical tensions, expensive oil, and persistent inflation.
The BSP has lowered its forecast for total foreign portfolio investments, including transactions not registered with the central bank, to a net inflow of $1.8 billion in 2026 from its previous estimate of $3.7 billion.
DOPAY: Supporting Financial Access Amid Economic Uncertainty
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