The PSEi’s January Mirage: GDP Slumps as Liquidity, Curve Control, and Index Engineering Mask the Stress

 

The reality is, if we tell the truth, we only have to tell the truth once. If you lie, you have to keep lying forever—Rabbi Wayne Dosick 

In this issue

The PSEi’s January Mirage: GDP Slumps as Liquidity, Curve Control, and Index Engineering Mask the Stress

I. GDP Shock, the PSEi 30 Barely Blinks

II. Liquidity-Led Asian Bull Run—The Philippines Tags Along

III. What the PSEi 30 Shows—and What It Conceals

IV. The Five-Minute Market: January 30

V. Index Output vs. Concentrated Reality

VI. ICTSI: The PSEi 30’s Silent Underwriter

VII. Concentration Risk Is Not Easing—It’s Shifting

VIII. Liquidity Concentration Remains Entrenched

IX. Manufactured Gains, Accumulating Fragility

XI. Mining–Oil Resurrection: Performance at the Margins, Volume Tells the Real Story

X. Expect a Pullback from the Overbought Mining-Oil Index

XI. When GDP Breaks, the PSEi 30 Follows

XII. Easy Money Fails—Again and Again!

XIII. The Pro-Cyclical Politics of Market Participation; Lessons from the 1994 GSIS–SSS Stock Loan Programs

XIV. PERA: Risk Transferred, Not Eliminated; When Loss Absorption Becomes a Policy Fault Line

XV. Philippine Peso Stress Is the Signal, Not the Noise

XVI. Trump’s Weak Dollar Policy: A Temporary Reprieve—Not a Resolution

XVII. From Gaming the Index to Gaming the Curve

XVIII. Macro Stability as Policy Objectives of Yield Curve Interventions

XIX. The PSEi 30 as Collateral Infrastructure

XX. Conclusion: January’s PSEi 30’s Performance: Not A Vote Of Confidence—But A Managed Outcome 

The PSEi’s January Mirage: GDP Slumps as Liquidity, Curve Control, and Index Engineering Mask the Stress 

Why Philippine equities rose as GDP, the peso, and credibility deteriorates

I. GDP Shock, the PSEi 30 Barely Blinks 

Figure 1

In a week when Philippine authorities announced yet another growth shock—GDP slowing further from a revised 3.9% in Q3 to just 3.0% in Q4 2025—the domestic headline equity index closed the week down a negligible 0.07%. (Figure 1, upper table) 

For full-year 2025, GDP growth decelerated sharply to 4.4%, from 5.7% in 2024—a material slowdown that we will examine in detail in a separate post. 

Yet markets barely reacted. 

Despite deteriorating macro fundamentals, January’s performance pushed the PSEi 30 up 4.56% month-on-month (MoM) and 7.96% year-on-year (YoY), its strongest combined MoM and YoY showing since September 2024. 

On the surface, the Philippine equity market appeared resilient—almost indifferent—to worsening growth data. 

II. Liquidity-Led Asian Bull Run—The Philippines Tags Along 

This performance placed the PSEi 30 alongside most easy-money-driven Asian equity markets, many of which extended their 2025 bull runs into the first month of 2026. 

According to Bloomberg data, 16 of 19 major Asian indices ended January higher, with an average gain of 4.7%. South Korea’s tech-heavy KOSPI led the surge, climbing nearly 24% in January and touching successive record levels. Other markets—including Singapore, Taiwan, Indonesia, Pakistan, and Sri Lanka—also carved out new highs. (Figure 1, lower graph) 

In this context, Philippine equities benefited from the regional liquidity tide. But the PSEi 30’s gains tell only part of the story. 

III. What the PSEi 30 Shows—and What It Conceals 

Media commentary has largely attributed January’s index strength to optimistic domestic narratives, while blaming external forces and corruption for lingering weaknesses (self-attribution bias). 

What has been almost entirely ignored is how index construction, free-float weighting, and trading mechanics materially shape reported performance. 

The public remains largely uninformed about how a small cluster of heavyweight constituents—rather than broad-based participation—drives index outcomes. 

January 30 offers a textbook example. 

IV. The Five-Minute Market: January 30  

Figure 2

On January 30, the PSEi 30 jumped 1.7% in a single session. But roughly 87% of that gain occurred during the five-minute pre-closing (floating) period, not during continuous trading!  (Figure 2, topmost window) 

Banks—particularly BPI—were central to this move. 

BPI was down 0.27% heading into the pre-closing phase. During the runoff, however, the stock reopened nearly 9.73% higher—effectively a 10% spike!! (Figure 2, middle image) 

This unusually large end-of-session repricing almost single-handedly altered the index outcome. 

Other major beneficiaries:

• BDO (+1.96%)
• Metrobank (+2.82%)
• SM Investments (+0.96%)
• Ayala Land (+1.43%) 

All were among the top 10 stocks by free-float market capitalization. 

In a wink of an eye, January’s "outstanding" index performance was successfully locked in. 

V. Index Output vs. Concentrated Reality 

This divergence becomes clearer when decomposing returns. 

The average month-on-month return of PSEi 30 component stocks was only 2.86%, and 2.85% on a full market-cap basis—well below the index’s 4.56% headline gain. (Figure 2, lowest diagram) 

Why the gap? 

Because the most significant contributions came from free-float-weighted gains concentrated in a handful of names—led principally by ICTSI, and reinforced by BPI, Ayala Corp, Metrobank, and Meralco. As of January 29, these five stocks accounted for 39.7% of the index’s free-float market capitalization. 

VI. ICTSI: The PSEi 30’s Silent Underwriter

Figure 3

The PSE’s largest constituent, ICTSI, has been racing toward successive record highs throughout January. This performance is magnified by its free-float weight of 17.82%, an all-time high as of January 29th. (Figure 3, topmost pane) 

In practical terms, ICTSI has bankrolled the PSEi 30’s returns since 2024. 

With approximately 55% of the Services sector’s full market capitalization, ICTSI has been primarily responsible for the sector’s 8.7% MoM and 33% YoY gains. 

Sectoral strength, in this case, is less a reflection of broad economic vitality than of single-firm dominance amplified by index mechanics. 

VII. Concentration Risk Is Not Easing—It’s Shifting 

Interestingly, despite ICTSI’s outsized role, the combined weight of the top five index constituents appears to have peaked. After reaching a record 53.02% in mid-December, their share eased slightly to 51.64% by January 29th. (Figure 3, middle chart) 

This can be read in two ways: 

One. A welcome broadening of gains beyond the largest names, or

Two. A growing vulnerability stemming from the index’s continued dependence on a narrow elite—increasingly dependent on tactical flows rather than structural diversification. 

At this stage, trading behavior suggests the latter interpretation is more consistent with reality. 

VIII. Liquidity Concentration Remains Entrenched 

January trading data reinforces this conclusion. 

The top 10 brokers accounted for an average of 61.5% of daily main board volume, down marginally from 63.5% in December. (Figure 3, lowest visual) 

On a weekly basis, however, this concentration trend has been rising steadily since the second half of 2025. 

Meanwhile, the top 10 traded issues represented 58.8% of daily volume, down from 65% in December. 

These are modest improvements—but they do not alter the core reality: trading activity remains heavily concentrated among a small group of players and stocks, who, in turn, shape index outcomes. 

IX. Manufactured Gains, Accumulating Fragility 

Taken together, January’s performance was not the product of broad-based confidence or improving fundamentals. It was manufactured through index construction, free-float concentration, and strategically timed flows—particularly during thin post lunch trading, pre-closing and runoff windows. 

While the gains appear orderly on the surface, the risk concentration embedded within the PSEi 30 is reticently intensifying. This fragility is neither well understood nor adequately discussed—yet it defines the true state of the market far more than the headline index level ever could. 

X. Breadth Confirms Concentration, Not Strength 

There is more evidence that January’s headline gains masked a deeply concentrated market.

Figure 4 

Despite the PSEi’s strong January performance, market breadth barely improved. 

The advance–decline spread widened by only 30 issues, a stark contrast to 2023’s spread of 184, when the PSEi posted a more modest 3.45% YoY gain—yet still ended that year down 1.77%. (Figure 4 topmost window) 

In other words, stronger index performance today is being achieved with far weaker participation. 

XI. Mining–Oil Resurrection: Performance at the Margins, Volume Tells the Real Story 

A significant contributor to January’s gains came from the Mining and Oil sector, riding the surge in global metal prices. 

The sector’s 10-component index jumped 25.8% MoM and an extraordinary 175% YoY, off a deeply depressed base. Unlike 2006–2012, miners are not just outperforming but decisively diverging from the PSEi 30. (Figure 4, middle image) 

Volume followed performance. Mining turnover surpassed that of the once-favored (PLUS and BLOOM) gaming stocks—higher by 18% in January. Yet, PLUS fell 19.01% MoM, BLOOM rose 12.6%, and Philweb surged 56.3%—a clear signal of institutional preference for high-volatility, high-beta trades. (Figure 4, lowest diagram)

This divergence highlights an uncomfortable reality: capital is rotating not toward fundamentals, but toward popular narratives, leverage and momentum.

The Mining sector’s share of main board volume surged to 7% in January, contributing materially to the 33.6% YoY increase in the PSE’s main board volume and the 36.5% rise in total/gross market turnover. Cross transactions accounted for 17.3% of MBV. 

Meanwhile, the Property sector’s share of gross turnover rose to 21.7% from 18.74%, while Holdings increased to 15.26% from 14.21%. Property had negative returns (-3.43% MoM, -.26 YoY) while holdings were buoyed (+4.86 MoM, +2.25% YoY) 

Together, these shifts reinforce a widening divergence between mainstream index performance and the previously shunned, cyclical, or politically unpopular sectors, particularly mining and oil. 

We have long anticipated the sector’s revival, and recent performance has clearly validated our call. 

But wait… 

X. Expect a Pullback from the Overbought Mining-Oil Index 

Though we expect the mining index to endure a sizeable pullback from their overextended, overbought levels—no trend moves in a straight line—this does not negate the broader regime backdrop supporting the sector. 

A growing set of global structural risks consistent with a potential regime transformation—manifested in a deepening war economy, the weaponization of the dollar, sanctions, protectionism, fiscal dominance, persistent central bank easing, and widening geopolitical tensions—should place a cap on any sustained decline. 

In this context, we should also expect partial rotation within the complex, particularly from metals toward oil-gas, rather than a wholesale reversal of the trade. 

XI. When GDP Breaks, the PSEi 30 Follows 

Despite the apparent regularity of post–lunch recess rallies—what I have previously labeled "afternoon delight"—and the repeated appearance of coordinated large-cap based "pre-closing" pumps (and dumps), the PSEi 30 has historically tracked GDP trends, albeit with a lag.

Figure 5

The most recent upside cycle began in mid-November 2025 and appears to have peaked by mid-January 2026. Notably, the index remained conspicuously indifferent to the Q4 GDP collapse, as if the slowdown had already been discounted—or managed. (Figure 5, topmost window) 

History suggests otherwise. 

At the onset of BSP rate cuts in August 2024, the PSEi surged nearly 15%, as easing was sold as a growth elixir. That optimism proved short-lived. (Figure 5, middle graph) 

GDP slowed sharply from 6.5% in Q2 2024 to 5.2% in Q3, barely stabilized in Q4, and was followed by a 10.5% PSEi plunge in Q1 2025. 

By Q3 2025, GDP had deteriorated further to 3.9%, and the PSEi collapsed another 18%. 

This pattern is not accidental. 

XII. Easy Money Fails—Again and Again! 

It bears repeating: RRR cuts, policy rate easing, expanded deposit insurance, and persistent fiscal stimulus—including pandemic-era deficits—have NOT revived growth. (Figure 5, lowest chart) 

As history has shown, they have accompanied or worsened economic deceleration. 

Yet the mainstream narrative insists these tools are the only solution.

Figure 6

The same logic is now being applied to equities: more liquidity, more intervention, more management of outcomes. (Figure 6, topmost diagram) 

Ironically, rather than igniting a genuine bull market, the PSEi increasingly requires non-market interventions to manufacture the appearance of macro stability. 

XIII. The Pro-Cyclical Politics of Market Participation; Lessons from the 1994 GSIS–SSS Stock Loan Programs 

Aside from direct market interventions, the politics of engineering a bull market have evolved.

Beyond the Capital Markets Efficiency Promotion Act (CMEPA)—which we have repeatedly criticized—the mainstream has revived proposals reminiscent of the defunct GSIS–SSS stock loan programs to further stimulate retail participation. 

These initiatives, however, reflect fundamentally pro-cyclical policymaking. 

The GSIS and SSS stock loan programs—most notably the GSIS Stock Purchase Financing Program (SPFP) launched in 1994—coincided with the peak of the PHISIX (now the PSEi). 

The 1997 Asian Financial Crisis inflicted severe losses, exposing the program’s structural flaw: embedding leverage and mark-to-market risk into institutions designed for capital preservation. 

The crisis did not create this fragility; it merely revealed the contradiction. 

XIV. PERA: Risk Transferred, Not Eliminated; When Loss Absorption Becomes a Policy Fault Line 

Current discussions on deepening participation now extend to PERA (Personal Equity and Retirement Account), where savings are managed by accredited administrators and invested in qualified instruments such as mutual funds, UITFs, insurance products, and government securities. 

While PERA removes explicit leverage, it introduces principal–agent problems and asymmetric information risks, with outcomes largely driven by professional managers rather than individual contributors—with fee structures, asset allocation, career advancement and herding behavior playing a decisive role in their decision process. 

Losses being absorbed at the individual level is systemically healthy. But the moment the state attempts to cushion or prevent those losses, it recreates the SPFP problem—only more slowly and diffusely. 

In short, policies framed as "enhancing participation" amplify bubble cycles and effect a tacit redistribution from savers to institutional intermediaries, ultimately eroding—rather than strengthening—the foundations of the capital market. 

XV. Philippine Peso Stress Is the Signal, Not the Noise 

The accelerating GDP slowdown validates our long-held view that the USDPHP breach of the 59 “soft peg” was a signal of mounting structural stress. (Figure 6, middle image) 

It also casts the BSP’s gold sales in a different light—not merely as FX defense, but as an indication of latent stress across government, central bank, and bank balance sheets. 

As we wrote last November: 

The peso’s breach of 59 isn’t just a technical move. It’s the culmination of structural stress that monetary theater can no longer hide.

XVI. Trump’s Weak Dollar Policy: A Temporary Reprieve—Not a Resolution 

The peso’s recent recovery owes less to domestic strength than to global easing dynamics. US dollar weakness—driven by policy stance and market expectations under President Donald Trump—pushed the DXY down roughly 0.8% MoM and 9.8% YoY. 

As a result, USDPHP ended January at 58.86, temporarily slipping below the 59 threshold (+0.85% YoY, +0.12% MoM). 

This reprieve is unlikely to last. Once balance-sheet stress becomes more visible, a test of the 60-level appears increasingly inevitable.

XVII. From Gaming the Index to Gaming the Curve 

At January’s close, the Philippine BVAL yield curve revealed yet another layer of policy response. (Figure 6, lowest chart)

Figure 7

The curve reflects a deliberate, policy-induced bearish steepening. As Q4 GDP slowed to 3%, the BSP eased the front end and belly to support bank funding conditions and preserve financial stability. Simultaneously, 20–25 year yields rose month-on-month, exceeding November 2025 levels, as markets imposed a fiscal and inflation credibility premium amid global term-premium repricing. (Figure 7 topmost image) 

The contradiction is stark: domestic accommodation is deployed to stabilize balance sheets, while long-duration yields signal rising skepticism over fiscal sustainability and inflation containment. 

XVIII. Macro Stability as Policy Objectives of Yield Curve Interventions 

This curve management feeds directly into the gaming of the PSEi 30. 

Historically, widening 10Y–3M and 10Y–6M spreads have coincided with CPI pressure, as accommodation persists and inflation risk migrates through FX and expectations channels. (Figure 7 middle chart) 

Meanwhile, the PSE’s Financial Index has risen across both steepening (2020–22) and flattening (2023) regimes—not because of curve “health,” but because of curve control. (Figure 7, lowest graph) 

Through coordinated yield-curve signaling, peso stabilization, and institutional balance-sheet absorption, authorities project macro stability despite slowing growth—redistributing stress away from markets and toward households, future inflation, and shrinking policy space.

XIX. The PSEi 30 as Collateral Infrastructure 

Beyond boosting expectations and managing optics, the theatrics surrounding the PSEi 30 serve a more practical and underappreciated function: inflating and stabilizing collateral values across the financial system. 

For banks, insurers, trust entities, and large institutions, equity holdings—particularly index-heavy, highly liquid names—are not merely investments. They function as collateral, balance-sheet buffers, and capital-supporting assets used in repo transactions, interbank funding, structured products, and internal risk models. 

In an environment of slowing GDP, rising long-end yields, and latent balance-sheet stress, mark-to-market declines in these assets would immediately tighten financial conditions. Holding the PSEi 30 together—especially its largest constituents—helps preserve collateral valuations precisely when funding pressures are building elsewhere. 

This helps explain why support is selective rather than broad-based. Propping up the largest free-float names delivers the greatest collateral impact per peso deployed, even as market breadth deteriorates. The objective is not market health, but balance-sheet continuity. 

In this light, the PSEi 30 becomes less a reflection of economic confidence and more a policy-adjacent tool—a stabilizing surface that allows banks and institutions to extend accommodation, delay recognition of stress, and avoid procyclical tightening in credit and funding markets. 

But this stability is conditional. Should equity collateral values falter, or when cash flow/liquidity problems intensify, the feedback loop would reverse—forcing deleveraging, tightening credit, and accelerating the very slowdown policymakers are trying to defer.

XX. Conclusion: January’s PSEi 30’s Performance: Not A Vote Of Confidence—But A Managed Outcome 

Index gains were manufactured through concentration, liquidity choreography, curve control, peso management, and the tacit inflation of collateral values. 

What appears as market resilience is, in reality, the financial system preserving its own scaffolding amid deteriorating growth—a classic symptom of a late-cycle phase rather than a genuine expansion. 

In such phases, markets are stabilized not to signal strength, but to delay adjustment. Stress is redistributed away from asset prices and toward households, future inflation, fiscal credibility, and shrinking policy space. 

The longer stability is engineered rather than earned, the more abrupt the eventual repricing becomes—when collateral support weakens and policy capacity is finally exhausted. 

___

Select References (quote and validations) 

Prudent Investor Newsletter, The USD-PHP Breaks 59: BSP’s Soft Peg Unravels, Exposing Economic Fragility, Substack, November 02, 2025 

Prudent Investor Newsletter, The CMEPA Delusion: How Fallacious Arguments Conceal the Risk of Systemic Blowback, Substack, July 27, 2025 

Prudent Investor Newsletter, How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series), Substack, April 02, 2025