A glimmer of interest

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It may just be a glimmer of interest, but it appears that foreign fund inflows have re?emerged as the primary driver of the Philippine equity market, according to the market focus report of First Metro Securities Brokerage Corp. prepared by analysts Mark Angeles and Samantha Patricio.

According to the report dated Feb. 13, year-to-date inflows have exceeded $300 million and active outflows are reversing. The sharp pickup in January appears to mark a decisive shift in foreign participation, pushing the rolling 52?week flows back to positive territory.

The rebound, FirstMetroSec believes, has been driven almost entirely by passive flows, particularly US?domiciled GEM (or Global Emerging Markets) funds that follow rules?based EM allocations rather than local fundamentals.

As such, FirstMetroSec points out, “investors have largely looked past domestic macro and political noise, focusing instead on broader EM currency trends than on the Philippine peso and concentrating purchases in large?cap index names.”

The Metrobank Group brokerage firm notes that “while flows remain sensitive to global sentiment, several factors support continued momentum: a strengthening EM recovery narrative, expectations of EM currency appreciation and persistent underweight positioning among foreign investors. If inflows remain robust, the market is on track to reach our 7,500 bull?case target by year?end.”

FirstMetroSec is thus recommending investors align with fund flows, particularly, “increasing exposure to MSCI Philippines heavyweights which have historically been the primary beneficiaries of passive and benchmark?driven allocations. Foreign flow momentum is already improving and if sustained, we expect these names to lead market outperformance.”

The firm’s top recommended picks are Ayala Land Inc., Bank of the Philippine Islands, BDO Unibank Inc., International Container Terminal Services Inc., Jollibee Foods Corp., Manila Electric Co., PLDT Inc., SM Investments Corp. and SM Prime Holdings Inc.

Foreign fund inflows, the report said, have emerged as the key driver of the Philippine equity market returns, supporting their bull case scenario. After building gradually through the second half of 2025, foreign inflows accelerated sharply in January.

Emerging Portfolio Fund Research or EPFR data, FirstMetroSec said, show year-to-date (YTD) inflows exceeding $300 million, noting active fund outflows have reversed, contributing $21 million so far and suggesting the de-risking phase may be ending.

Over recent months, the report elaborates, passive funds have accounted for the bulk of total inflows, with a significant share from US?domiciled GEM funds.

The Philippines, FirstMetroSec argues, is benefiting from a mechanical, rules?based allocation process where flows are driven less by local fundamentals and more by the global EM narrative. This explains why the Philippines’ unfavorable macro backdrop and political noise are being largely overlooked.

Additionally, they cite that the direction of the broader EM currency basket has mattered more than the Philippine peso and foreign buying remains concentrated in large-cap index names.

The analysts recognize that visibility beyond the next two months is limited, as flows are highly sensitive to shifts in global sentiment, often serving as a barometer of risk appetite. Foreign fund flows are inherently difficult to forecast, but based on their observations, the most relevant leading indicator of fund flows is the direction of the EM currency index — appreciation typically coincides with inflows while depreciation tends to trigger outflows.

FirstMetroSec believes momentum in foreign fund inflows into Philippine equities is likely to be sustained, underpinned by the following:

Constructive outlook for EM. Growing consensus around EM recovery supported by improving regional economy, policy support as well as an attractive valuation discount to DM (Developed Markets) peers.

EM currency appreciation bias. “Our DBS economists expect further US dollar weakness against most EM currencies, supporting continued passive allocations.”

Underweight positioning + FOMO. Foreign funds have been underweight the Philippines for more than half a decade. As consensus in the EM recovery strengthens, passive inflows could prompt active managers to increase exposure, reinforcing the yellow brick road dynamic (of the safe path to a goal or success) — which points toward a destination they can no longer afford to ignore.

Follow the fund flows. FirstMetroSec recommends positioning investments in line with the direction of foreign flows. If inflows remain robust, the market remains on track to the brokerage firm’s 7,500 bull?case year?end target. To capture this upside, it recommends increasing exposure to MSCI Philippines constituents which have historically been the primary beneficiaries of passive and benchmark?driven allocations.

The MSCI Philippines Index is designed to measure the performance of the large and mid-cap segments of the Philippine market. With 11 constituents, the index covers about 85 percent of the Philippines equity universe.

FirstMetroSec adds that “Foreign flow momentum is already turning upward. If sustained, we expect these names to lead market outperformance. Their liquidity, substantial index weight and scalability that foreign investors consistently seek place these counters at the center of any prolonged foreign buying cycle, from passive vehicles initially and potentially from active managers chasing performance as the foreign bid broadens.”

Perhaps, the unrelenting effort of US?Philippine Society co-chair Jaime Augusto Zobel and other Philippine business leaders over the past few years to strengthen the bilateral relationship between the US and Philippines — despite the changes in political leadership in both countries — has helped the US business community keep a keen eye on the business fundamentals of top Philippine companies, led no less by two Ayala?owned firms ALI and BPI as well as by the Sy?family’s banking and investment arm, Enrique Razon’s ICTSI, the Manuel V. Pangilinan?led Meralco and PLDT and the Tan Caktiong?led Jollibee.

As Philippine Ambassador to the US Jose “Babes” Romualdez pointed out at the just concluded two?day meeting of the Society from Feb. 9 and 10, “politicians or sometimes even diplomats come and go...but businessmen are here to stay. So it’s always good to have businessmen as part of the team and of course Jaime is one of those, the major player here in the Philippines — who has made sure that our relationship continues to be very strong.”