Why the PSE Failed in 2025: Engineered Markets and Broken Policy Transmission

 

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today—Laurence J. Peter 

Wishing you an exciting 2026: record highs, easy money, and all the risks that come with it. 

In this issue: 

Why the PSE Failed in 2025: Engineered Markets and Broken Policy Transmission

I. The Echo Chamber of Optimism

II. Institutional Conflicts of Interest: Agency Problem and the Information Asymmetry

III. Global Euphoria vs. Local Fragility: A Market That Failed to Respond—Despite Every Attempt to Boost It

IV. Engineered Rallies and the BSP’s Easing Cycle Elixir

V. Mounting Concentration Risk and the ICTSI Distortion

VI. Foreign Selling, CMEPA, and the Gaming Bubble

VII. From Equities to Energy: Bailouts Without Calling Them Bailouts

VIII. A Lone Divergence: Mining and the War Economy

IX. The Philippine Treasury Market Confirms the Diagnosis

X. Conclusion: When Policy Loses Its Grip

XI. Epilogue: The Façade of January Effects 

Why the PSE Failed in 2025: Engineered Markets and Broken Policy Transmission 

Why the PSEi 30 underperformed despite rate cuts, engineered rallies, and unprecedented policy support 

I. The Echo Chamber of Optimism

Figure 1

Does the public even remember the barrage of starry-eyed headlines and sanguine projections that dominated discourse from late-2024 through 2025? (Figure 1) 

From Goldman Sachs’ overweight upgrade on Philippine equities (November 2024), to the relentless amplification of projected PSEi 30 returns by the mainstream echo chamber, to a business media outfit hosting a Pollyannish stock market outlook forum in February 2025, optimism was not merely expressed—it was drilled into the public consciousness. 

Strangely, at the forum, Warren Buffett’s aphorism—“be greedy when everybody is fearful”—was cited ironically at a time when virtually every expert was advocating optimism. Even “cautious optimism” emerged as the most defensive stance. 

All told, media and institutional narratives throughout 2025 projected rising equities anchored on a strengthening GDP—an assumption that would soon have the rug pulled out from under it.

Figure 2

In hindsight, the establishment’s posture resembled a classic denial phase in a deflating PSEi 30 bubble cycle. (Figure 2)

II. Institutional Conflicts of Interest: Agency Problem and the Information Asymmetry 

The fundamental problem lies in the structural conflicts of interest between financial institutions and the investing public. 

This dilemma reflects classic agency problem and asymmetric information. The objectives of buy- and sell-side institutions—fees, commissions, deal flow—diverge materially from those of retail investors seeking risk-adjusted returns. 

As a result, sales pitches camouflaged as institutional research or news are designed to attract savings/capital, not to interrogate risk–reward tradeoffs. The information disseminated to the public is therefore shrouded in adverse selection and biased framing. 

Despite serious unintended consequences from excessive interventions—easy money distortions, fiscal crowding-out, regulatory interference, capital controls, bailouts, and capital-market price manipulation—this savings-depleting dynamic receives scant acknowledgment. 

III. Global Euphoria vs. Local Fragility: A Market That Failed to Respond—Despite Every Attempt to Boost It 

There is also little recognition that the Philippine Stock Exchange has vastly underperformed, despite extraordinary efforts to support it.

Figure 3 

As global central banks embarked on a historic easing campaign and global equities posted a third consecutive year of double-digit gains, the PSEi 30 closed 2025 as the second-worst performer in Asia, ahead of only Thailand. (Figure 3, topmost pane) 

Of 19 national bourses tracked by Bloomberg, 16 ended the year higher, averaging a striking 19.22% return—led by South Korea, Pakistan, Sri Lanka, and Vietnam. The Philippines, alongside Bangladesh and Thailand, stood out as an underperforming outlier. (Figure 3, middle graph) 

This flagrant underperformance—despite substantial engineered pumps in Q4—laid bare the market’s internal fragilities. 

IV. Engineered Rallies and the BSP’s Easing Cycle Elixir 

In December, a series of price-distorting late-session “afternoon delight” and pre-closing “rescue pumps” lifted the PSEi 30 by 0.51% MoM. 

These were concentrated in banks and property stocks, echoing the mainstream narrative that rate cuts should disproportionately benefit them. (Figure 3, lowest table) 

Additional support came from ICTSI, following its powerful October–November advance. Although the rally peaked on December 12 before a mild pullback, ICT’s surge drove the services sector up 10.5% and lifted the headline index by 1.67% in Q4.

Figure 4

For context, the BSP’s first rate cut in August 2024 was initially sold as an elixir, propelling the PSEi 30 up by a remarkable 13.4% in Q3 2024. Yet a surprise weak Q3 2024 GDP print (+5.2%) triggered a sharp reversal: –10.23% in Q4 2024 and –5.33% in Q1 2025. After another significant setback in Q3 2025 (–6.46%), the index fell –4.9% in 2H 2025. (Figure 4, topmost window) 

Despite repeated interventions, the PSEi 30 closed 2025 down 7.29%. 

V. Mounting Concentration Risk and the ICTSI Distortion 

Since peaking in 2018, the PSEi 30 has recorded six negative return years out of the last eight—an unmistakable sign of a debt-trapped, late-cycle economy. (Figure 5, middle chart) 

The index’s internals underscore this bearish backdrop: 24 of 30 constituents ended 2025 in the red, averaging a –6.87% decline. (Figure 4, lowest image)

Figure 5

Yet again, ICTSI—the PSE’s largest market-cap stock—nearly single-handedly prevented a deeper collapse. Its 46.9% full-year gain pushed its free-float weight to a record 17.8% in mid-December, ending the year at 16.5%. (Figure 5, topmost diagram) 

Consequently, the combined free-float weight of the top 5 heavyweights to a record 53% but closed at 52.16% still proximate to an all-time high. (Figure 5, second to the highest visual) 

Adjusted for the peso’s 1.6% YoY depreciation to a record low, the PSEi 30 fell 8.78% in USD terms—its seventh year of decline since 2017. (Figure 5, second to the lowest image) 

The dollar index DXY fell by about 9.6% in 2025. 

VI. Foreign Selling, CMEPA, and the Gaming Bubble 

The broader PSE fared no better. Outside a handful of names, most issues declined and market internals remained weak. (Figure 5, lowest chart) 

While synchronized “national team” pumping supported headline levels, it was largely offset by persistent foreign selling—a dominant force since 2018.

Figure 6 

Foreign participation rose to 49.18% of gross volume in 2025, the highest since 2021. (Figure 6, topmost window) 

That said, under globalization and financialization, “foreign selling” does not necessarily imply foreign fund liquidation. Many elite-owned firms operate through offshore vehicles and could be part of the ‘foreign’ trading activities. 

In the meantime, gross and main board volume (MBV) rose 14.64% and 19.13% in 2025, but most of this activity peaked around the CMEPA rollout in July and slowed materially thereafter. Ironically, the capital-consumption effects of the law generated unintended consequences: asset bubbles, negative returns, and corroding liquidity. (Figure 6 middle image) 

For example, as the government cracked down on digital gambling, the PLUS gaming bubble accounted for a staggering 11.65% of main board volume in Q3 2025, revealing how speculative excess merely migrated into the PSE—absorbing retail savings in the process. 

In 2025, concentration activities intensified: the top 10 brokers averaged 63.44% of Q4 main board volume; the top 20 accounted for over 82% both in Q4 and full-year 2025 MBV. 

VII. From Equities to Energy: Bailouts Without Calling Them Bailouts 

Engineered rescue rallies are not cost-free. They amplify concentration risk, intensify late-cycle fragility, and expose deeper balance-sheet stress driven by debt-financed asset support and misallocation. 

This pattern extends beyond equities. 

Authorities initiated a soft bailout of the energy sector—first indirectly via the SMC–AEV–MER asset-transfer triangle, and later through Real Property Taxes (RPT) waivers favoring elite-owned IPPs. This was followed by another buy-in: Prime Infrastructure’s acquisition of a 60% stake in FGEN’s Batangas LNG project, alongside higher consumer charges via GEA-All layered on top of FIT-All. 

VIII. A Lone Divergence: Mining and the War Economy 

For the first time, the mining sector not only outperformed but diverged meaningfully from the PSEi and broader market. Its performance reflects exposure to global commodity dynamics—finance, geopolitics, and the war economy—rather than domestic demand. (Figure 6, lowest graph) 

While retracements are possible given overbought conditions, current signals suggest any correction may be cyclical rather than trend-reversing. 

IX. The Philippine Treasury Market Confirms the Diagnosis 

The warning signs extend to Philippine treasury markets.

Figure 7

By end-2025, the Philippine BVAL curve had clearly steepened relative to the flattish 2023–2024 profile, though it remained less extreme than the pandemic-era 2022 BSP rescue year. This shift points less to growth optimism and more to rising risk premia. (Figure 7, upper diagram) 

While short-dated T-bill yields have not fallen back to 2022 levels—despite policy rate cuts, aggressive RRR reductions exceeding pandemic-era easing, and the doubling of deposit insurance—long-term yields remain materially higher than in 2023–2024, signaling mounting market concern over fiscal conditions, debt supply, and credibility. 

The resulting mixed yield configuration, occurring alongside slowing GDP growth and persistently elevated bank lending rates, reflects not selective liquidity management but a failure of monetary transmission: BSP sought genuine easing, yet impaired bank balance sheets, malinvestment, and fiscal overhang have rendered markets far less malleable than policymakers expected. 

X. Conclusion: When Policy Loses Its Grip 

Taken together, the events of 2025 expose a Philippine financial system increasingly governed by intervention rather than price discovery—and increasingly constrained by balance-sheet fragility rather than cyclical weakness. 

Despite aggressive policy easing activities, engineered equity support, regulatory inducements, and explicit and implicit bailouts, markets failed to respond as expected. Instead, concentration deepened, liquidity thinned, and monetary transmission weakened. 

The underperformance of the PSEi 30 was not an anomaly but a symptom. Equity pumps masked deterioration; index ‘strength’ concealed internal decay. 

The peso weakened, bond yields re-priced fiscal risk, bank lending rates remained elevated, and savings were quietly consumed through speculation and policy distortion. What appeared as support increasingly functioned as stress transfer—from institutions to households, from balance sheets to prices, and from the present to the future. 

In this sense, 2025 was not merely a bad year for Philippine equities. It was a year in which markets signaled—clearly and repeatedly—that policy credibility, strained by diminishing returns and collapsing transmission/tightening effective liquidity, had become the binding constraint. 

Until balance-sheet repair, fiscal discipline, and genuine price discovery are restored, further intervention may sustain appearances—but not balance-sheet health or durable confidence. 

XI. Epilogue: The Façade of January Effects 

January has historically been a strong month for the PSE, often reflecting the so-called ‘January effect’—seasonal inflows driven by year-end cash balance surpluses, portfolio reallocations, and tactical positioning. 

Using the January 2018 peak as the reference point, the PSEi 30 has posted January gains in five of the past eight years (62.5%). Yet over that same post-2018 cycle, full-year returns have been negatives/deficits in six of those years (75%). The implication is clear: early-year strength has repeatedly failed to translate into durable annual performance. (Figure 7, lower chart) 

Even so, institutional cheerleading is likely to intensify. Seasonal rallies will be framed as confirmation of recovery, even as stimulus-driven activity continues to deepen debt-led imbalances and erode household savings. 

This is not to suggest that the PSEi 30 must necessarily close 2026 in negative territory. Rather, when façade substitutes for structure—when form is elevated over substance—market fragility increases. 

Under such conditions, for the general market, the probability of risk and loss continues to outweigh potential gains, regardless of how loudly institutions beat the drum for a bull market. 

Meanwhile, the risk of a meltdown looms. 

____

Select References 

Prudent Investor Newsletters, The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy, Substack, December 07, 2025 

Prudent Investor Newsletters, Inside the SMC–Meralco–AEV Energy Deal: Asset Transfers That Mask a Systemic Fragility Loop, Substack, November 23, 2025 

Prudent Investor Newsletters, PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth, Substack, November 30, 2025 

Prudent Investor Newsletters, The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t Substack, November 16, 2025 

Prudent Investor Newsletters, The Philippine Flood Control Scandal: Systemic Failure and Central Bank Complicity, Substack, October 05, 2025 

Prudent Investor Newsletters, June 2025 Deficit: A Countdown to Fiscal Shock, Substack, August 3, 2025 

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

Prudent Investor Newsletters, The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble Substack, July 6, 2025 

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

 

 

 

 

 

 

 

The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy

 

Uncertainty should not bother you. We may not be able to forecast when a bridge will break, but we can identify which ones are faulty and poorly built. We can assess vulnerability. And today the financial bridges across the world are very vulnerable. Politicians prescribe ever larger doses of pain killer in the form of financial bailouts, which consists in curing debt with debt, like curing an addiction with an addiction, that is to say it is not a cure. This cycle will end, like it always does, spectacularly—Nassim Nicholas Taleb 

In this issue 

The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy 

I. Drowning in Debt: Philippine Government Bails Out the Energy Industry!

II. What the RPT Relief Confirms; The Four Phase Bailout Template

III. Phase 1 — Transactional relief: Chromite–San Miguel deal

IV. Phase 2 — RPT Cut: The Regulatory Relief

V. Phase 3 — Financial System Backstopping

VI. Phase 3a — The Policy Trap or the Escalating Systemic Risk Phase

VII. Phase 4 — Political Resolution: Socialization

VIII. Phase 4a – Socialization vs. Forced Liberalization

IX. Why This is s Late-Cycle Phenomenon

X. Conclusion: This Episode Was Never About Electricity Prices 

The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy 

The four phases of the SMC–AEV–Meralco rescue reinforce the logic of late‑cycle fragility

I. Drowning in Debt: Philippine Government Bails Out the Energy Industry! 

In the third week of November, we noted: 

The triad of San Miguel, Aboitiz, and Meralco illustrates deepening centralization, pillared on a political–economic feedback loop.  

Major industry transactions, carried out with either administration blessing or tacit nudging, function as implicit bailouts channeled through oligarchic control. (bold original) 

That thesis was quietly confirmed weeks later. 

Buried beneath the torrent of daily headlines was a development of first-order importance.

Figure 1

GMANews, December 3, 2025: President Ferdinand Marcos Jr. has ordered the reduction and pardon of all interest and penalties on real property taxes (RPTs) levied on independent power producers (IPPs) for 2025. In a statement, Malacañang said the cut in RPT liabilities of IPPs is "to prevent defaults and economic losses that could affect electricity supply and the government’s fiscal stability." (bold added) (Figure 1, upper news clip) 

Bullseye! 

This was not a routine tax adjustment. It was an explicit admission that private-sector leverage—specifically within the power industry—had crossed into systemic risk territory. 

It bears noting that the five largest power firms by market position are San Miguel, Aboitiz Power, First Gen, PSALM, and ACEN (Mordor Intelligence, 2024). 

The sector is tightly concentrated, politically franchised, and structurally shielded from competition. 

Aggregate 9M debt for the proponents of the Batangas LNG–Ilijan–EERI triangle—the SMC–AEV–MER troika—soared 16.4% YoY, reaching a record Php 2.254 trillion. Financing charges likewise jumped 8.3% YoY, hitting Php 101.17 billion, an all-time high. (Figure 1, lower chart) 

In that same November post, we asked what this meant for 2025–2026. The answer was already embedded in the corporate balance sheets: 

• cash liquidity is tightening
• banks are approaching risk limits
• debt has become the default funding model
• headline GDP growth is increasingly sustained by inter-corporate transactions rather than productive capex
• large conglomerates are supporting one another through balance-sheet swaps 

According to the Inquirer.net, this marks the third time (2023, February 2025 and December 2025) the incumbent administration has forgiven or reduced RPT-related financial charges. That pattern matters. 

Because this bailout arc pushes leverage toward the public balance sheet, the Philippine peso becomes the pressure valve of last resort 

II. What the RPT Relief Confirms; The Four Phase Bailout Template 

This latest RPT condonation has four critical implications: 

1. Political brokerage: Confirms the deal was arranged and brokered politically—a backstop to buy time, not reform.

2. Elite rescue: The energy sector operates through de facto monopolistic political franchises; relief accrues to incumbents, not consumers.

3. Late-cycle marker: Preemptive default prevention reflects an economy drifting into business-cycle exhaustion, where failures are no longer politically tolerable.

4. Counterparty contagion: Because creditors to IPPs are also elite-controlled, counterparties will need support—expanding the bailout perimeter. 

What we are now observing is a four-phase bailout arc in the Philippine energy sector:

Transactional Relief → Regulatory Relief → Financial System Backstopping → Resolution by Socialization/Forced Liberalization. 

III. Phase 1 — Transactional relief: Chromite–San Miguel deal 

The opening move comes disguised as a "strategic partnership." 

In reality, AEV/Meralco—through Chromite Gas Holdings—absorbed San Miguel’s stressed LNG and Ilijan assets (SPPC, EERI, related industrial estate and terminal exposure). Balance-sheet pressure is eased without declaring stress; earnings volatility was suppressed, and leverage was redistributed rather than reduced—in the interim. 

This phase is intentionally ambiguous. No one calls it a rescue. There is no emergency language, no fiscal line item. The objective is clear: prevent immediate balance-sheet failure without triggering market discipline, buying time before the state is forced to intervene. 

It sets a crucial precedent—private leverage can be quietly transferred and restructured under the guise of efficiency. 

This is a classic late-cycle hallmark: defaults become politically unacceptable, but overt bailouts are still premature. 

IV. Phase 2 — RPT Cut: The Regulatory Relief 

The next phase shifts from private camouflage to public condonation. The RPT cut is decisive. 

Malacañang’s own justification—"to prevent defaults and economic losses that could affect electricity supply and fiscal stability"—reframes private leverage as a public-interest problem. That line is the SMOKING GUN! 

At this stage, the bailout is no longer implicit; it is simply reframed as stability policy. 

Fixed costs are reduced, cash flows are protected, local governments (including Special Education Fund allocations) lose revenue, and political risk is shifted from firms to the sovereign. 

Concentrated gains, distributed costs—the political rent-seeking model, public choice theory in action. 

Bluntly, profits remain privatized while costs are socialized—a political free lunch and textbook oligarchic capture.

This phase entrenches moral hazard: elites learn leverage will be accommodated, not disciplined. Smaller players and consumers are sidelined; political-economic imbalances mount, fragility escalates.

Crucially, previous rounds of subsidies have failed to repair balance sheets or deliver durable consumer relief. The evidence is clear: these measures stabilize optics, not fundamentals.

These two phases are ex-post. We now turn to the potential ex-ante stages. 

V. Phase 3 — Financial System Backstopping 

This phase is partly in process and could intensify. 

Why issue such a justification unless there is a clear and present danger? 

The fact that this is the SECOND time in 2025 that authorities have subsidized IPPs through RPTs speaks volumes about the underlying problems 

Despite the BSP’s aggressive easing cycle—rate cuts, reserve‑requirement reductions, doubled deposit insurance, and record public spending that has pushed deficits back toward pandemic levels—liquidity stress persists. This signals a supply-side balance-sheet problem, not a demand shortfall. 

The stress point is becoming unmistakable: elite-owned leverage, particularly in capital-intensive sectors like power—amid slowing growth. 

Figure 2

According to the BSP’s Depository Corporations Survey, as of October the private sector’s share of domestic claims rose to 64.7%, while the combined financial and private sector share of M3 climbed to 80.63%. In Q3, domestic claims reached 77.6% of GDP, nearly matching the pandemic highs of 77.7% in Q1 and Q4 2021. By contrast, M2 and M3 shares of GDP—though still elevated since the pandemic recession—have been slowing, a clear departure from their previous synchronous trajectory during 2006–2020. (Figure 2) 

This divergence underscores the core problem: systemic leverage has risen through domestic claims, concentrated among elite firms, yet its transmission to real economic activity has weakened. 

This is the reason for the rescue mission.

VI. Phase 3a — The Policy Trap or the Escalating Systemic Risk Phase 

As unproductive leverage persists and economic growth slows, bank balance sheets deteriorate. Liquidity tightens, lending slows, and stress migrates from corporates to the financial system. 

The BSP will likely respond with escalating use of its pandemic playbook:

• Deepening easing: policy-rate and RRR cuts
• Implicit injections through BSP facilities.
• Explicit support: direct infusions (e.g., the Php 2.3 trillion precedent).
• Regulatory forbearance: capital relief and provisioning leniency.
• Soft-peg defense: attempts to stabilize USD/PHP. 

Yet contradictions mount.

Figure 3

Monetary easing is constrained by inflation and FX risk; tightening risks amplifying bank stress.  Domestic liquidity and external liabilities have been key drivers of the USDPHP’s rise. (Figure 3) 

As domestic claims rise without generating real-sector activity, liquidity hoarding intensifies, weakening the monetary transmission mechanism and amplifying FX vulnerability. 

The USD/PHP soft-peg becomes fragile—defense drains reserves, while abandonment risks inflation and capital flight. 

Policy enters a trap: support the system and weaken the currency, or guard the currency and fracture the system. 

Diminishing returns begin to cannibalize monetary and economic stability. 

VII. Phase 4 — Political Resolution: Socialization 

When liquidity support and regulatory masking can no longer hold, losses are formally absorbed by the state:

• Nationalization: partial or full state control of critical assets.
• Recapitalization: government injections into systemically important institutions.
• Bad-bank vehicle: a ‘Freddie Mac’–style structure to warehouse distressed assets while preserving legacy ownership. 

Losses are socialized; control is recentralized. 

The public balance sheet expands sharply while elite actors exit with preserved equity, retained assets, or negotiated upside. What began as a "strategic deal" ends as systemic capture, with nationalization the final stop in a late-cycle rescue arc. 

VIII. Phase 4a – Socialization vs. Forced Liberalization 

Late-cycle bailout arcs bifurcate. 

If the state retains fiscal and monetary capacity, losses are socialized through nationalization or resolution vehicles. If capacity is lost—via reserve depletion, inflation, or debt saturation—the system drifts toward forced liberalization. Market discipline is not restored deliberately; it re-emerges violently. 

In this scenario, incumbent protections collapse, policy support evaporates, and asset values are repriced downward. It may resemble "liberalization," but it is not reform—it is involuntary liquidation triggered by exhausted savings and unsustainable balance sheets or by unsustainable economics—resulting in disorderly transitions, and heightened political instability. 

Ideology shapes the preferred response. 

The populist embrace of social democracy, with its preference for top-down conflict resolution, skews the political response toward socialization. 

But ideology is not sovereign and cannot override economics: real savings and fiscal capacity, not preference, ultimately determines which path the cycle takes. When the state can no longer absorb fragility, liberalization is not chosen—it is imposed. 

IX. Why This is s Late-Cycle Phenomenon 

These phases occur when:

• Leverage is high.
• Political tolerance for defaults has collapsed.
• Asset extraction has run its course.
• The state becomes the residual risk holder. 

In early or mid-cycle, failure disciplines excess. 

In late cycles, failure is deferred, masked, and ultimately absorbed by the public—after market discipline has already broken down. 

X. Conclusion: This Episode Was Never About Electricity Prices 

This episode was never about electricity prices. 

The Philippine energy-sector rescue is not a single policy choice but a phased continuum: transactional camouflage, regulatory condonation, financial backstopping, and ultimately either socialization or forced liberalization. Each phase follows the same late-cycle logic—fragility is too politically costly to reveal, so it is deferred, disguised, and transferred away from the firms that created it.

What began as a "strategic partnership" now stands exposed as a systemic bailout, with the state increasingly positioned as the residual risk holder. 

This is the defining feature of a late-cycle economy: leverage is high, defaults are politically intolerable, and oligarchic control ensure that private losses migrate toward the public balance sheet. Consumers and taxpayers ultimately bear the burden. 

The real question is not whether the cycle ends in public absorption of losses, but how much fragility will be socialized before a reckoning becomes unavoidable. 

Crucially, not all late-stage bailouts climax in outright socialization. When fiscal capacity collapses—through reserve depletion, inflation pressure, or debt saturation—the path can shift toward forced liberalization or selective deregulation and privatization. 

This is not genuine reform but an involuntary unwind: protection collapses, policy support recedes, and assets are repriced downward. It looks liberal but functions as disorderly liquidation, with distributional costs shifted onto households while elites regroup. 

Ideology shapes the state’s instincts. Populist social democracy, market‑averse and reliant on top‑down resolution, leans toward socialization. Liberalization, by contrast, rests on cooperation, division of labor, property rights, and rule of law — mechanisms that can resolve conflict without central command. 

Yet ideology alone does not decide the path: fiscal capacity and real savings ultimately determine whether fragility is absorbed by the state or forced back into the market. 

Thus, the endgame bifurcates: 

1. Resolution by Socialization – nationalization, recapitalization, or bad-asset vehicles that warehouse losses while preserving incumbent control. 

2. Resolution by Forced Liberalization – selective deregulation, privatization, and asset sales driven not by ideology but by incapacity, where the state abandons protection because it can no longer sustain it. 

Both paths are late-cycle responses to the same underlying condition: systemic fragility accumulated over years of leverage, political accommodation, and institutional rent-seeking capture. 

They differ not in purpose, but in the mechanism through which risk is transferred—and in both cases, the public ultimately shoulders the cost. 

In late cycles, the currency becomes the final referendum on the system’s accumulated fragility 

Caveat emptor.

____ 

References

Prudent Investor Newsletters, Inside the SMC–Meralco–AEV Energy Deal: Asset Transfers That Mask a Systemic Fragility Loop, Substack, November 23, 2025 

Prudent Investor Newsletters, PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth, Substack, November 30, 2025

PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth

 

The ultimate cause, therefore, of the phenomenon of wave after wave of economic ups and downs is ideological in character. The cycles will not disappear so long as people believe that the rate of interest may be reduced, not through the accumulation of capital, but by banking policy—Ludwig von Mises 

In this issue: 

PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth

Part I: Cycles, Business Cycles, and Market Cycles

I.A Why Business Cycles Are Not Natural Phenomena

I.B. Credit Expansion and the Origin of Boom–Bust Cycles

I.C. Late-Cycle Fragility: Headline Resilience, Underlying Stress

I.D. Financial Fragility, Opacity, and the Bezzle

Part II: The Late Cycle in the Philippine Context: Economic and Corporate Activities

II.A.  Macro and Policy Stimulus, An Environment Built to Support Growth

II.B. The GDP Surprise—and Why It Should Not Have Been One

II.C. The PSEi 30 Aggregate: A Disquieting Divergence From GDP, The Energy Trio Distortion

II.D. The 9-Month Scorecard: The Same Story, Amplified

II.E. Cash Drain, Debt Surge, and the Minsky Turn

II.F. Concentration, Money Illusion, and Elite Financialization

II.G. Sectoral Divergences: Real Estate, Retail, Food Services

II.H. Banking Fragility: Wile E. Coyote Finance

Part III: Conclusion: Late-Cycle Fragility Exposed 

PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth 

PSEi 30 earnings, leverage, and liquidity strains reveal a late-stage business cycle

Part I: Cycles, Business Cycles, and Market Cycles 

Cycles refer to a series of events that recur in the same order. This concept is most evident in nature: the Earth’s orbit around the sun produces the day–night cycle, while diurnal and seasonal cycles define time itself—days, weeks, months, and years. These natural rhythms shape life cycles, ecological systems, and nearly all activity on the planet.

Figure 1 

Economic activity is no exception. Economies evolve through recurring phases collectively known as the business cycle—periods of expansion, peak, slowdown, and contraction over time. Financial markets or market cycles operate within a related rhythm: accumulation (bottom), mark-up (advance or bull market), distribution (peak), and markdown (decline or bear market). 

I.A Why Business Cycles Are Not Natural Phenomena 

Mainstream economics largely treats business cycles as natural oscillations of aggregate activity. Using leading, coincident, and lagging indicators, it describes how cycles unfold—unfortunately it fails to explain why they occur in the first place: the causality. 

Yet widespread, synchronized business errors do not arise spontaneously in a market economy. Such aggregate misallocation occurs only when firms are influenced by a common external force—namely, inflationary monetary and credit policies imposed from outside the market process. 

I.B. Credit Expansion and the Origin of Boom–Bust Cycles 

As the late great dean of the Austrian School of Economics, Murray N. Rothbard explained, the business cycle is not an inherent feature of a free and unhampered market. It is generated by government-driven bank credit expansion, which artificially suppresses interest rates and induces uneconomic overinvestment—particularly in long-duration capital goods such as machinery, construction, raw materials, and industrial plant. 

As long as monetary and credit expansion continues, these distortions remain masked by the euphoria of the boom. But once credit expansion slows or stops—as it must to avoid runaway inflation—the misallocations become visible. Recession is not the disease; it is the corrective process through which the market liquidates unsound investments, realigns prices, and restores coherence between production, demand, and savings. Recovery begins only once this adjustment is completed. (see reference) 

I.C. Late-Cycle Fragility: Headline Resilience, Underlying Stress 

We have consistently argued that both the Philippine economy and its equity market have been operating in late-cycle territory—or, in market terms already within a bear-phase dynamic. 

The late stage of the business cycle is a paradoxical moment. Expansion still dominates headlines, yet the underlying machinery of growth begins to grind. 

• Profits remain visible, but margins thin.
• Credit is still available, but increasingly costly.
• Policymakers, media and the mainstream speak of resilience, while households and firms quietly absorb tightening liquidity and rising cost pressures. 

This phase is defined less by collapse than by precarious equilibrium.

• Imbalances accumulate as buffers erode.
• Asset prices may remain elevated, but market breadth narrows.
• Large firms mask stress through consolidation, transfers, and concentration strategies, while smaller players begin to falter—the periphery to the core phenomenon.
• Inventories rise, debt-service burdens increase, and policy transmission weakens. 

In such an environment, shocks—whether natural disasters, geopolitical missteps, or financial accidents—carry outsized consequences. 

For listed corporates, late-cycle fragility manifests as earnings resilience built on substitution rather than productivity: one-off gains, margin and cash-flow deterioration, rising leverage, emerging liquidity stress, asset reshuffling, narrow sector leadership, and financial engineering—often accompanied by accounting prestidigitation that substitutes for genuine growth. 

The result is a corporate landscape that appears stable on the surface yet grows increasingly brittle underneath, mirroring the broader macro paradox of headline resilience alongside systemic vulnerability. 

I.D. Financial Fragility, Opacity, and the Bezzle 

Furthermore, this stage of the cycle is often accompanied by what Hyman Minsky described as Ponzi finance, where cash flows are insufficient to service obligations without continual refinancing or asset appreciation. 

This dynamic frequently intersects with Charles Kindleberger’s politics of swindle and fraud, and John Kenneth Galbraith’s concept of the “bezzle”—the accumulation of undiscovered financial misconduct that grows during booms and is revealed only when liquidity tightens. 

Historically, major frauds tend to surface not at the height of optimism, but during the transition from boom to bust. The Enron scandal emerged as the dot-com bubble unraveled; Bernie Madoff’s Ponzi scheme collapsed amid the 2008 Global Financial Crisis; and the COVID-19 downturn exposed widespread abuse of the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. 

In late-cycle conditions, transparency deteriorates as economic stress rises. Firms, households, and institutions increasingly resort to opacity, accounting maneuvers, and even outright malfeasance—whether to survive, to exploit weakened oversight and abundant credit, or to preserve credit-fueled, status-driven lifestyles that become harder to maintain as conditions tighten. 

These behaviors do not cause the cycle, but they amplify fragility, accelerating the loss of confidence once the credit tide recedes. 

Part II: The Late Cycle in the Philippine Context: Economic and Corporate Activities 

II.A.  Macro and Policy Stimulus, An Environment Built to Support Growth 

Any serious economic analysis must begin with the operating environment that shaped outcomes. 

The Q3 and nine-month period coincided with what should have been the ‘sweet spot’ of monetary and fiscal support. The Bangko Sentral ng Pilipinas (BSP) had already delivered six of its seven policy rate cuts since August 2024, alongside two reserve requirement ratio (RRR) cuts—from 9% to 5% (a cumulative 400 basis points) in September 2024 and March 2025. Deposit insurance coverage was also doubled in March 2025. 

Fiscal deficit also swelled to pandemic levels through Q3 2025. 

II.B. The GDP Surprise—and Why It Should Not Have Been One 

Despite these extraordinary supports, Q3 GDP printed a 4.0% growth rate, shocking the mainstream consensus. The slowdown came as leveraged households retrenched, exacerbated by the contraction in government construction and infrastructure outlays following the ongoing flood-control corruption scandal. (as previously discussed, see reference) 

The result was a classic late-cycle outcome: stimulus saturation met weakening transmission—the law of diminishing returns. 

II.C. The PSEi 30 Aggregate: A Disquieting Divergence From GDP, The Energy Trio Distortion 

Against this backdrop, the PSEi 30’s operating performance exposed a sharp disconnect from headline GDP.

Figure 2

• Q3 nominal GDP growth slowed from 8.6% (2024) to 4.9% (2025)
• PSEi 30 Q3 revenues decelerated more sharply, from 6.8% to 1.9%
• Q3 Net income growth collapsed from 11.6% to just 0.9% (Figure 2, upper window) 

Inflation-adjusted, earnings growth was effectively negative—a stagnation masked only by nominal accounting. 

The most consequential distortion came from the SMC–Meralco–AEV energy triangle, discussed previously. In Q3 2025, this grouping accounted for: 

• 32.2% of total PSEi 30 revenues
• 15.1% of total net income 

Yet even with that concentration, the triangle weighed down aggregate performance. Excluding the trio, PSEi 30 revenues and net income would have grown by 2.4% and 4.7%, respectively. What had boosted results in Q2 became a drag by Q3. 

Notably, Q3 PSEi 30 revenues amounted to ~28% of nominal GDP and ~32% of real GDP—a sufficiently large share that these contrasting numbers should call the 4.0% GDP print into question. 

If the largest listed firms are stagnating, aggregate output growth should have been materially lower. 

II.D. The 9-Month Scorecard: The Same Story, Amplified 

The 9M data amplifies the fragility. 

• PSEi 30 revenue growth: 8.1% (2024) → 2.07% (2025)
• Nominal GDP: 9.3% → 6.55% (Figure 2, lower image)
• PSEi 30 share of NGDP: declined from 27.9% to 26.9% 

This narrowing occurred not as a result of robust GDP, but rather due to a deeper stagnation in corporate activity and a probable overstatement of the GDP estimate. 

The energy trio accounted for 31.2% of nine-month PSEi 30 revenues, yet their aggregate sales contracted by 3.75%, dragging the index’s growth rate down.

Figure 3

Meanwhile, residue effects from prior asset transfers kept nine-month net income growth elevated at 10%, driven by a 39% earnings surge from the trio. (Figure 3, upper chart) 

Ex-trio earnings growth was a far weaker 5.32%. 

This is earnings growth without economic growth—a hallmark of late-cycle accounting inflation that likely also bleeds into GDP measurement. 

II.E. Cash Drain, Debt Surge, and the Minsky Turn 

One of the most revealing features of the nine-month data is liquidity erosion. 

Aggregate PSEi 30 cash balances fell 1.72%, the third consecutive nine-month decline, reaching the lowest level since 2021. (Figure 3, lower diagram) 

In contrast, the energy trio’s cash rose 22.8%, accounting for 36.2% of total cash holdings.

Figure 4

Sixteen of thirty firms recorded cash contractions averaging 11.7%. (Figure 4, upper table) 

At the same time, non-bank PSEi 30 debt rose by Php 603.15 billion—the second-largest nine-month increase since 2020, lifting total debt to a record Php 5.98 trillion 

Even with caveats: (as previously discussed) 

• This debt equals 16.8% of total Philippine financial system assets.
• It represents ~29.7% of nine-month nominal GDP.
• The increase alone accounted for ~75% of nominal GDP growth over the same period. 

Furthermore, the PSEi 30’s cash-to-debt ratio declined to its lowest level since at least 2020, thereby diminishing firms’ financial buffers against potential shocks. (Figure 4, lower visual) 

Worse, not all cash is liquid, and certain firms increasingly reclassify debt into lease liabilities or off-balance-sheet obligations. 

This is textbook Minsky drift: speculative finance sliding into Ponzi structures, with firms plugging liquidity gaps through refinancing rather than genuine cash generation. 

II.F. Concentration, Money Illusion, and Elite Financialization 

Financial and economic concentration has accelerated sharply. 

Six issuers (SMC, AC, SM, LTG, SMPH, JGS) control 55% of non-bank net assets. 

Including the four major banks (BDO, BPI, MBT, CBC), concentration rises to ~75% of total PSEi 30 assets. 

This centralization mirrors the broader financial system, where banks now account for 83.2% of total financial resources, confirming deepening financialization. 

II.G. Sectoral Divergences: Real Estate, Retail, Food Services 

Real Estate: Top 4 developers posted only 1.2% revenue growth in Q3, vs. official GDP prints of +6.8% nominal and +4.7% real. Inflation-adjusted revenues imply contraction. (see previous discussion)

Figure 5

Retail: Top 6 non-construction chains slowed to 3.7% growth—the weakest since Q3 2021. SM Retail stagnated at +0.9% despite new malls. Official retail nGDP (+6.3%) diverged sharply from corporate reality. (Figure 5, topmost graph) 

Food Services: Jollibee, Shakey’s, and Max’s slowed from 9.7% to 3.6%. Jollibee’s domestic sales growth plunged from 10.1% to 4.3%. Official food services GDP barely eased (+8.95%), again overstating resilience. (Figure 5, middle image) 

All this occurred amid store expansion, record consumer credit, and near-full employment—a stark contradiction of the official GDP narrative. 

Yet, cases like Meralco illustrate the money illusion: rising revenues alongside shrinking physical volumes, translating to regulatory-driven profit inflation—a concealed stagflation dynamic rather than real demand growth. (see previous discussion in reference) 

The divergence between PSEi 30 performance and household-spending GDP highlights a growing gap between market realities and official statistics. 

Even within the GDP figures, slowing household-spending growth coincides with rising government expenditure—an indication/symptom of the crowding-out effect. (Figure 5, lowest chart) 

Taken together, these discrepancies suggest inflated official output measures and weakening household consumption despite ongoing stimulus. 

Needless to say, corporate stagnation alongside reported GDP resilience increasingly looks like statistical gaslighting. 

II.H. Banking Fragility: Wile E. Coyote Finance

Figure 6

Banks have become the lifeblood of the economy, taking up an ever-larger share of the national accounts since 2000—a trend that has accelerated even as GDP growth weakens. (Figure 6, upper image) 

The slowing economy is reflected in the PSEi 30’s four major banks: their combined bottom line fell from 5.7% in Q2 to 3.3% in Q3. 

Meanwhile, the banking system’s operating income slid from 12.2% to 7.1%, even as provisions surged 539%. 

The historically tight correlation between GDP and bank operating income (2015–2022) has broken down since the BSP’s unprecedented rescue of the industry. (Figure 6, lower diagram) 

Banks are now running what can only be described as Wile E. Coyote operations: rapidly issuing loans to mask rising delinquencies, while expanding speculative and politically exposed positions (AFS and HTM assets) even as liquidity drains. (see previous discussion, references) 

Once they pull back to preserve balance sheets—restricting credit, reducing speculation, or offloading government securities—the façade of financialization will collapse, bailout or no bailout from the BSP. 

Part III: Conclusion: Late-Cycle Fragility Exposed 

Slowing revenues, weakening consumers, deepening leverage, escalating profit pressures, intensifying liquidity strains, rising opacity, accounting-driven inflation, entrenching concentration, and eroding banking and easy money+ fiscal policy transmissions are not isolated developments. Together, they form a textbook late-cycle configuration. 

The Philippine economy and its corporates illustrate precarious equilibrium. GDP prints still narrate strength, but the PSEi 30 reveals deepening fragility: profits masking stress, cash drained, debt piled, and incentives for malfeasance rising. 

This is the anatomy of late-cycle fragility—headline resilience concealing systemic vulnerability. 

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Murray N. Rothbard Economic Controversies p. 236-237 2011 Ludwig von Mises Institute, Mises.org 

Prudent Investor Newsletter, Inside the SMC–Meralco–AEV Energy Deal: Asset Transfers That Mask a Systemic Fragility Loop, Substack, November 23, 2025 

Prudent Investor Newsletter, The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t, Substack, November 16, 2025 

Prudent Investor Newsletter, When Free Lunch Politics Meets Fiscal Reality: Lessons from the DPWH Flood Control Scandal, Substack, September 07, 2025 

Prudent Investor Newsletter, Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap, Substack, September 14, 2025