‘Philippines portfolio outflows among heaviest in Asia’

MANILA, Philippines — The Philippines has suffered some of the heaviest portfolio outflows in Asia as its dependence on imported energy leaves local financial markets vulnerable to the continuing Middle East conflict, according to Moody’s Ratings.

In a report, the debt watcher grouped the Philippines with India and Indonesia as energy-importing economies that have experienced “sharper equity declines and the heaviest portfolio outflows” since the conflict erupted.

Moody’s attributed the weakness to the three countries’ reliance on Middle Eastern energy routes, relatively low domestic inventories and widening current account pressures. The Philippines currently holds a Baa2 sovereign credit rating with a stable outlook.

Despite the recent pressure, Philippine equities remained six percent higher year to date as of July 17, based on Moody’s data. However, the local market lagged several Asian peers that have benefited more strongly from investor demand for artificial intelligence, semiconductor and capital goods companies.

South Korean equities surged by 62 percent during the period, followed by Taiwan at 47 percent, Thailand at 30 percent and Japan at 27 percent. Indonesia, meanwhile, recorded the steepest decline at 29 percent, while India fell by eight percent.

Moody’s said North Asian markets have generally held up better despite their own reliance on imported energy because of their stronger positioning in the global technology value chain.

Technology and capital goods account for about 85 percent of South Korea’s equity market, 76 percent of Taiwan’s, 36 percent of Japan’s and 26 percent of Thailand’s, providing some protection against the deterioration in energy-importing economies’ terms of trade.

The divergence forms part of what Moody’s described as a new global macroeconomic regime in which investors increasingly favor companies with strong balance sheets, pricing power and exposure to policy-supported sectors such as AI, defense, electrification and critical minerals.

For oil-importing economies such as the Philippines, prolonged geopolitical uncertainty may also complicate the inflation and interest rate outlook.

Moody’s said global crude prices continue to carry a geopolitical risk premium, with normalization of supply routes expected to take time. It said higher-for-longer energy costs could raise consumer prices, squeeze corporate margins and strain government finances, “keeping central banks on a restrictive bias.”