Hot money net outflows surge in March due to Middle East war

MORE short-term foreign investments left the Philippines in March than flowed in, reflecting depreciating risk sentiment following the start of the United States and Israel’s war with Iran, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Transactions on foreign investments registered with the central bank through authorized banks posted a net outflow of $1.957 billion in March, larger than the $110.43-million outflow in the same month a year ago, according to preliminary data posted on the central bank’s website.

The March figure was the biggest monthly net outflow since December’s $2.358 billion.

This was also a reversal of the $283.2-million net inflow recorded in February.

Foreign portfolio investments are also referred to as “hot money” due to the ease with which these flows enter or leave the country.

Broken down, gross hot money outflows more than doubled to $3.78 billion in March from $1.82 billion in the same month last year. This also surged by 37.15% from the $2.76 billion worth of funds that exited the country in February.

Meanwhile, gross inflows went up by 6.49% to $1.82 billion from $1.71 billion in the same month a year prior. Month on month, placements sank from February’s $3.04 billion.

Investments in Philippine Stock Exchange-listed securities saw a net outflow worth $653 million that month versus the $282-million outflow in March 2025, while those in peso-denominated government securities posted a $1.304-billion net outflow, reversing the $171-million net inflow in the same month last year.

From January until the first week of April, foreign portfolio investments yielded a net outflow of $2.988 billion, a reversal of the $26.6-million net inflow in the same period last year, BSP data showed.

Gross outflows surged to $10.08 billion in the period versus $5.15 billion in the prior year.

Meanwhile, inflows went up to $7.09 billion from $5.176 billion.

The surge in hot money outflows in March was driven mainly by the Middle East war that started at the end of February that rattled global markets, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This compounded earlier concerns that dented risk sentiment, including the US’ military strikes on Venezuela, US President Donald J. Trump’s attempts to buy Greenland, and continued threats to the US Federal Reserve’s independence, he said.

After ending 2025 at the P58 range, the peso is now trading at the P61 level, with safe-haven demand for the greenback and inflation concerns due to the war shock causing regional currencies to weaken and also driving bond yields back up.

The Philippine Stock Exchange index has also dropped below the 6,000 mark in recent weeks after trading at the 6,400 level earlier this year amid dimming prospects of an end to the Middle East conflict.

“The net outflow in March largely reflects profit taking and portfolio rebalancing following strong inflows in February, amid renewed caution over the timing of global rate cuts and bouts of risk aversion,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

For the rest of the year, Mr. Ricafort said foreign portfolio investments may continue to yield net outflows as the Middle East conflict continues to affect risk sentiment and dim global economic prospects, which is reflected in rising bond yields, the decline in the main stock benchmark, and the peso’s weakness.

Still, the recent announcement of Philippine peso-denominated government bonds’ inclusion in the JPMorgan Chase & Co.’s Government Bond Index-Emerging Markets starting next year could provide an upside, he said.

“Month-to-month swings in hot money are typically driven by global sentiment rather than domestic fundamentals, and we expect flows to remain two-way and volatile this year as markets continue to reassess US monetary policy and geopolitical risks,” Mr. Asuncion added.

The BSP expects foreign portfolio investments to yield a net inflow of $3.7 billion this year, based on its latest balance of payments forecast. — A.M.C. Sy