Investors should avoid Philippine stocks and reduce exposure to local assets, according to a unit of London-based Oxford Economics, which warns that economic risks could intensify even if tensions in the Middle East ease.
Yan Wang, chief emerging markets and China strategist at Alpine Macro, said the Bangko Sentral ng Pilipinas' (BSP) decision to hike interest rates in response to the oil shock deals a "double hit" to an economy still reeling from a major corruption scandal.
The Philippines is caught in a classic emerging-market policy trap, Wang explained: tightening monetary policy into slowing growth risks triggering a vicious cycle where higher rates deepen the downturn, weaken the currency, and force further hikes. This combination is negative for asset prices.
While macro stability remains intact, it is "deteriorating at the margin," Wang noted.
"Philippine equities trade at a discount to the emerging market benchmark, but the near-term outlook remains unfavorable," he said. "The Philippines has been among our least favored markets since the Iran conflict and the shift toward tighter policy further reinforces the bearish case."
Last week, the BSP raised its key rate by a quarter point to 4.5 percent—the first tightening in over two years. Officials described the move as "preemptive" due to a worsening inflation outlook as the Middle East conflict persists.
Wang acknowledged the central bank's dilemma, noting limited policy levers to cushion the shock. The fiscal deficit, at nearly 6 percent of GDP, leaves little room for meaningful fiscal support.
Administrative measures are also constrained, he said. Despite the declaration of a national energy emergency, the country's highly deregulated energy sector limits government intervention.
The oil crisis exacerbates structural challenges, including heavy reliance on crude imports from the Middle East and limited domestic refining capacity.
Wang added that the remittance- and business-process-outsourcing-driven growth model is under strain. Remittances remain critical but contribute to a brain drain, while the BPO industry faces long-term disruption from artificial intelligence.