Philippines eyes return to emerging market bond index

In July, the media broke the news that the Philippine authorities were in talks to help secure the country’s potential return to an important emerging market bond index. Bond indexes, which are lists of recommended bonds from various countries, are used by many international investors as guides for where to put their money.

The Philippines was part of such an index until early 2024, when it was removed due to a reshuffling (called a rebalancing). Although not too many details were reported, the fact that government officials and the administrator of the bond index are in talks is seen as a positive sign, suggesting the Philippines might not only rejoin but possibly have an even more significant presence in the index.

The return of the Philippines to any potential bond index would translate to increased foreign investment flows. This is important because it could bring more foreign money into the Philippines. When a country is included in these indexes, investors who follow them closely often buy bonds from that country. For example, if the Philippines was given a 5% share in the index, we might expect investors to put about 5% of their funds into Philippine bonds.

Sticky is good

Given that investment houses that track the index would be required to hold a fixed percentage of Philippine investment products, this could suggest that investor flows would be less volatile and more “sticky”. These funds will be more likely to stay in place for a longer time.

With funds “sticking around” for as long as the Philippines remains in the index, this could also translate to a stronger peso as trading volatility is minimized to some extent. Given all of the positive attributes of the Philippine economy such as relatively upbeat growth prospects and moderating inflation, we believe the potential return of the Philippines to a bond index simply acts as a validation of the attractiveness of the country as an investment destination.

Hurdles and timeline

And although we can get excited about what looks to be an impending index inclusion for the Philippines, we do need to accept that there are likely a number hurdles, such as tax issues, market liquidity, and benchmark securities, before this inclusion can take place.

These challenges aren’t insurmountable, but they take time to address. India’s recent inclusion into a bond index finally occurred after a gestation period of roughly two years, so we do see the Philippines’ inclusion as more of a 2026 story.

Despite these challenges, there is reason to be hopeful. Philippine authorities are in regular and fruitful discussions with the administrators of these bond indices. When the index inclusion does happen, we will see new opportunities opening up for the economy and for investors.

NICHOLAS MAPA is Metrobank’s Chief Economist, Market Strategist, and Head of the Research and Market Strategy Department in the Financial Markets Sector. He graduated from the University of Asia and the Pacific (UA&P) with an undergraduate degree in Humanities and a Master of Science (MSc) in Industrial Economics. He also completed an MA in Economics from Vanderbilt University and an MBA from the Kelley School of Business at Indiana University. He travels regularly with his family, enamored by culture and history. An avid learner, he also reads extensively.