PSEi 30: The ICTSI Show

 

For most people, the most dangerous self-delusion is that even a falling market will not affect their stocks, which they bought out of a canny understanding of value—Leon Levy

In this issue

PSEi 30: The ICTSI Show

I. PSEi’s 30 Regional Outperformance

II. Misleading Index Performance (MSCI World, KOSPI)

III. The Ideological Foundation

IV. How Does This Relate to the PSEi?

V. One Stock, One Index

VI. Volume, Float, and the Shape of the Market

VII. The Intraday Pattern

VIII. Participation Collapse and Capital Consumption

IX. Conclusion: A Late-Cycle Signal 

PSEi 30: The ICTSI Show 

How concentration, liquidity, and selective speculation are reshaping the Philippine benchmark 

I. PSEi’s 30 Regional Outperformance 

Amid simmering political controversy over control of Senate leadership—which will ultimately oversee the forthcoming impeachment proceedings against the Vice President—the Philippine Stock Exchange Index (PSEi) emerged as Asia’s top-performing equity benchmark for the week, rising 2.94%.

Figure 1

This occurred against an otherwise weak regional backdrop. Rising sovereign yields and continued geopolitical uncertainty weighed on sentiment, leaving most Asian bourses under pressure. While a few benchmarks—such as Japan’s Nikkei, Singapore’s STI, and Taiwan’s Taiex—briefly touched intraweek highs, softer closes erased much of the momentum. Indonesia’s sharp correction and weakness in South Korea’s KOSPI dragged broader regional averages lower. (Figure 1, upper window) 

Yet headline index performance can mislead. 

II. Misleading Index Performance (MSCI World, KOSPI) 

Indices are not neutral reflections of reality; they are constructed representations shaped by methodology, market capitalization, and momentum. They measure a perspective. 

Take the MSCI World Index. The MSCI World purports to track 23 developed markets, yet the US now accounts for roughly 72.45% of the benchmark, with information technology alone at 30.6% and financials at 15.33%. (Figure 1, lower image) 

In practice, the MSCI World has become a proxy for US mega-cap tech. The label has quietly decoupled from what's actually being measured. 

Figure 2

South Korea's KOSPI presents a more dramatic case. Samsung and SK Hynix—dominant in global memory chip supply—recently comprised more than half the KOSPI's market capitalization, piggybacking on the speculative melt-up in US AI stocks. (Figure 2, upper diagram) 

SK Hynix joined the trillion-dollar club in late May. The consequence: the KOSPI's headline performance increasingly reflects two companies, not the broader market nor the national economy. 

The dislocation is visible in the underlying data. The Korean won hit an all-time low last week as bond yields climbed—a sharp divergence between price signals and fundamental conditions. 

Market breadth confirms the distortion: stocks hitting new lows spiked even as those hitting new highs continued to fade. (Figure 2, lower visual) 

As liquidity becomes more selective, capital crowds into a narrowing set of perceived winners. Momentum attracts momentum. FOMO and greater-fool dynamics amplify upside moves, especially when leverage enters the system. The result is not broad-based prosperity but increasingly concentrated leveraged speculative blowoffs.

Figure 3

China offers a parallel. Margin financing has surged to levels exceeding those seen during the 2015 equity boom, even as the Shanghai Composite remains below its prior peak. Reaching lower index highs despite greater leverage suggests diminishing returns from credit-fueled speculation: progressively more debt is required to generate the same market effect. (Figure 3) 

Rising concentration, speculative blowoffs, and record leverage: these are not isolated anomalies. They are convergent signals of late-cycle excess.

III. The Ideological Foundation 

This matters because modern central banking increasingly views asset prices as transmission mechanisms of economic policy. 

The logic is straightforward: higher asset prices generate wealth effects, encourage borrowing, support collateral values, and stimulate spending. In this framework, liquidity injections and policy backstops become implicit supports for financial assets. 

Former Federal Reserve Chair Ben Bernanke summarized this philosophy in the aftermath of the dot-com era:

There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse 

That single quote explains the architecture that followed: the successive rounds of monetary accommodation, the reflexive backstops, the tolerance for leverage—all premised on the belief that a competent central bank can contain the fallout from any speculative excess it helped create. Markets did not merely become politicized. They became instruments of policy, kept elevated by design. 

IV. How Does This Relate to the PSEi? 

The Philippine market increasingly displays similar characteristics.

Figure 4

The long-term divergence between the PSEi and International Container Terminal Services Inc. (ICTSI) has become difficult to ignore. 

Since the PSEi peaked in 2017 and entered a prolonged period of stagnation—a bear market, ICTSI has continued to surge, with recent price action increasingly resembling a parabolic advance. (Figure 4, upper window) 

As ICTSI reached a record high of Php 875 on June 3, its weight in the PSEi climbed to roughly 25.5%. (Figure 4, lower chart) 

The implications are significant. 

V. One Stock, One Index 

For the week, the PSEi gained a net 169.72 points, or 2.94%. Yet ICTSI alone contributed approximately 177.63 points to the index. Put differently, ICTSI accounted for more than 100% of the benchmark’s weekly advance (gross), while the remaining components collectively added little or acted as offsets. 

The broader composition of returns reinforces this imbalance.

Figure 5 

Across the PSEi’s 30 members, average weekly performance was only around 0.12%, with 16 issues actually posting losses. Although four of the biggest market cap issues advanced, ICTSI’s 13.62% surge overwhelmingly dominated benchmark performance. (Figure 5, topmost pane) 

Even outside the benchmark, the divergence becomes evident. The broader All Shares Index rose only 1.63%, while aggregate market capitalization increased 2.17%—both materially below the PSEi’s gain. 

Year-to-date performance paints an even starker picture: ICTSI’s share price has surged by 50.8%, while 22 of the 30 listed issues have declined. Remarkably, ICTSI’s strong gains have helped compress overall market losses to an average of just 6.7%! (Figure 5, middle chart) 

VI. Volume, Float, and the Shape of the Market 

Liquidity concentration tells a similar story. 

ICTSI accounted for roughly 29.5% of main board trading volume during the week, exceeding 32% in the final three sessions. 

Foreign buying represented around 9.3% of ICTSI turnover. 

Yet in today’s financialized system, “foreign buying” deserves nuance: overseas registration does not necessarily imply independent foreign institutional capital, as such flows may also reflect affiliates, intermediaries, or networked financial structures linked to domestic interests. 

Broker concentration adds another layer. The top ten brokers accounted for an average of approximately 64% of main-board turnover, underscoring the degree to which market activity remains concentrated among a relatively narrow set of big cap issues. 

This raises a fundamental question about representation. 

The PSEi 30 is intended to track the performance of the country’s 30 largest and most actively traded listed firms and is commonly treated as a barometer of Philippine business conditions. 

Yet context makes the weight anomaly stranger still: ICTSI ranks 16th among PSEi 30 constituents by published assets—Php 568 billion as of Q1 2026. It is not the largest company in the index. 

It is simply the one commanding the most speculative attention or one company has increasingly come to define the behavior of a benchmark meant to represent an entire market. 

Notably, unlike the AI-driven concentration seen in global technology benchmarks, there is little evidence of comparable speculative spillover among ICTSI’s global peers. 

Adani Ports and Shanghai International Port—both larger operators—show no equivalent price behavior. The parabola is local. (Figure 5, lowest images) 

That divergence makes ICTSI’s acceleration even more striking. 

VII. The Intraday Pattern

Figure 6 

Four of the five trading sessions this week followed a recognizable structure: early pumps, momentum that faded or peaked into the close, and pre-close dumps in three of those four sessions. (Figure 6) 

The sequence is not random. Concentrated positions—anchored around largest cap names with broker coordination—set up a strong open. When momentum peaks or the desired level is reached, supply materializes into the closing dump, leaving retail and non-cartel institutional participants on the wrong side of the book. And insiders rearm for the next day’s trade. 

The redistribution dynamic here is straightforward: those who set the opening tone capture the gains; those who follow the signal absorb the unwind. 

The result is similar: headline index strength masks increasingly fragile breadth underneath. 

It is visible in the intraday data with unusual clarity.

VIII. Participation Collapse and Capital Consumption 

Despite repeated modernization initiatives—including digital onboarding, reduced board lots, REIT expansion, market-structure reforms, and other capital-market development programs—active participation in the Philippine equity market has continued to deteriorate.

Figure 7

Active investor participation fell to a record low of 11.8% in 2025. More strikingly, institutional participation did not merely decline in activity; the absolute number of enrolled institutions contracted from 32,284 in 2024 to 29,910 in 2025. (Figure 7, upper pane) 

The participation collapse is not a failure of access. It is a rational response to a market that has repeatedly demonstrated that insiders capture the gains while latecomers absorb the distribution. 

This has broader political-economy implications. 

Sustaining elevated asset prices is not solely about investor confidence or market optics. Equities also function as collateral. Rising share prices support credit expansion directly through pledged securities and indirectly through valuation effects on parallel assets, balance sheets, and spending behavior. 

The reflexive relationship between asset prices and credit expansion is not a side effect of the system. It is one of its central operating mechanisms of fiat systems. 

In this sense, supporting financial asset prices becomes intertwined with a broader economic model dependent on liquidity, leverage, and wealth effects. Policies such as CMEPA, PERA, and related capital-market initiatives reflect this orientation by theoretically channeling savings toward financial assets and expanding the investor base upon which asset-price support depends. 

Instead, what this produces over time is capital consumption disguised as capital formation. Savings intermediated through a distorted pricing mechanism do not necessarily accumulate into productive capital; increasingly, they facilitate redistribution and economic maladjustments. 

The weekly headline performance of the PSEi may communicate one story. Market breadth, volume concentration, and participation trends suggest another. 

Concentration, however, carries its own tradeoffs. 

The more a benchmark depends on a single company, a dominant narrative, or a narrow liquidity channel, the less representative—and potentially more fragile—it becomes. 

When one stock increasingly becomes the market, the benchmark may no longer be signaling broad economic strength. Instead, it may be signaling the progressive narrowing of the channels through which liquidity continues to flow. 

IX. Conclusion: A Late-Cycle Signal 

The PSEi's recent outperformance may say less about broad Philippine corporate strength, the economy and more about the extraordinary influence of a single firm. 

ICTSI's dominance increasingly resembles concentration dynamics observed in other late-cycle markets: narrow leadership, selective liquidity, weakening breadth, and a widening divergence between financial performance and underlying participation. 

The key question is not whether ICTSI can continue to rise indefinitely or even whether its advance can catalyze a broader re-rating across PSEi constituents. Rather, it is whether a benchmark increasingly dependent on a single stock reflects the progressive narrowing of liquidity channels, exposing deeper market, financial, and economic fragilities characteristic of a late-cycle environment. 

A market sustained by increasingly narrow leadership may prove particularly vulnerable to external shocks, especially when global liquidity conditions tighten. The recent crash of Indonesia's JKSE amid mounting currency pressures illustrates how quickly seemingly stable market narratives can unravel once economically sensitive conditions turn less favorable. (Figure 7 lowest diagram)

Liquidity at the Top: The PSEi 30’s Two-Months Rally Meets Structural Fragility Amid Middle East War Risks

 

Bubbles are mechanisms of wealth redistribution and destruction – with detrimental consequences for social and geopolitical stability. Boom periods engender perceptions of an expanding global pie. Cooperation, integration, and alliances are viewed as mutually beneficial. But perceptions shift late in the cycle. Many see the pie stagnant or shrinking. A zero-sum game mentality dominates. Insecurity, animosity, disintegration, fraught alliances, and conflict take hold—Doug Noland 

In this issue

Liquidity at the Top: The PSEi 30’s Two-Months Rally Meets Structural Fragility Amid Middle East War Risks

I. PSEi 30’s Early Start: A Strong Tape — On the Surface

II. Headline Strength vs. Structural Fragility

III. PSEi 30’s Concentration Risk: ICTSI’s Growing Dominance

IV. Breadth and Liquidity: Gains with Caveats

V. Confidence Policy and Market Structure Risk

VI. Middle East War: Geopolitical Energy Shock and Philippine Macro-Financial Vulnerabilities

VII. Conclusion: When Index Strength Outruns Market Health 

Liquidity at the Top: The PSEi 30’s Two-Months Rally Meets Structural Fragility Amid Middle East War Risks

Index strength masks concentration, policy engineering, and rising geopolitical fragility 

I. PSEi 30’s Early Start: A Strong Tape — On the Surface 

The PSEi 30 closed the week up 2.26%, pushing its 2‑month return to 9.22%—one of the strongest early-year performances in recent years.

Figure 1

The Philippine market appears to be benefiting from abundant global liquidity and rotational flows. Last year’s Asian laggards—Thailand and the Philippines—are now among the top YTD performers, alongside continued momentum in high flyers such as South Korea, Taiwan, Japan, and Singapore. (Figure 1, upper window) 

Yet the strength has emerged despite an “unexpected” Q4 GDP slowdown to 3%. 

In February alone, the PSEi 30 posted a 4.46% MoM and 10.22% YoY gain. (Figure 1, lower table) 

The divergence between slowing output and rising asset prices was not organic—it was liquidity-driven, fueled by foreign inflows and heavy concentration in select index names. 

The tape is strong. The base is narrow. 

II. Headline Strength vs. Structural Fragility 

Cap-weighted indices increasingly function less as barometers of broad market health and more as mirrors of heavyweight concentration. 

This is not unique to the Philippines. The MSCI World Index, for example, is heavily skewed toward the United States and further concentrated in mega-cap technology firms. 

But scale matters. 

In deep, liquid markets, concentration often reflects earnings dominance, structural passive flows, and sustained institutional participation. While representation may be distorted, price discovery remains broadly competitive.

Figure 2

By contrast, in thinner markets, rising concentration is compounded by shallow turnover and limited participation. In such conditions, late-session or post-recess “afternoon delight” flows, along with pre-close (5-minute float) coordinated pump-dumps targeting heavyweight stocks, can exert an outsized influence on index levels. (Figure 2, topmost pane) 

The outcome is not simply greater concentration, but structural fragility — where headline index strength may owe more to liquidity conditions, market microstructure, and political dynamics than to broad-based economic vitality. 

Index gains, therefore, should not automatically be interpreted as evidence of systemic health. 

In shallow markets especially, strength at the top can coexist with weakness underneath. 

III. PSEi 30’s Concentration Risk: ICTSI’s Growing Dominance 

Performance has become increasingly concentrated. 

International Container Terminal Services, Inc. (ICTSI) now dominates index and sector dynamics: 

• Services index: +10.3% MoM, +45.74% YoY, +19.82% YTD (February 2026)
• ICTSI share of services sector volume: 52.35%
• Services sector share of main board value: ~35% 

ICTSI’s weight in the Services Index rose from 55.31% in January to a record 56.4% in February. (Figure 2, middle diagram) 

Its share of main board turnover increased from 15.32% to an all-time high of 18.48%, approaching the 19.8% peak recorded by PLUS during its July melt-up. 

Last February, foreign fund flows accounted for 16% of ICTSI’s total turnover—the highest level since at least October 2025 (Figure 2, lowest graph)

Figure 3

Within the PSEi 30, ICTSI’s weight surged to a record 19.3% on February 25, closing the week at 18.9%, as of February 26th.  (Figure 3, topmost image) 

The top five heavyweights now account for 51.51% of the entire index or five issues comprise more than half of the PSEi 30. 

This means: A 1% move in ICTSI contributes nearly as much to index performance as several smaller constituents combined. 

This is mechanical leverage embedded in construction. 

That is not breadth — it is structural leverage. 

February’s advance saw 20 issues rise, 9 decline, and 1 unchanged, with an average gain of 3.92% — slightly below the 4.46% free-float index gain, illustrating the impact of cap weighting. (Figure 3, middle graph) 

Year-to-date, ICTSI’s +26.23% outperformance has amplified this divergence. Among the top ten stocks (71% of index weight), gains were supported by AC, JFC, MBT, and MER, yet the average gain of the 19 advancing issues was 6.8% — still below the 9.22% index gain. (Figure 3, lowest chart) 

That February and YTD gap is weighting. This is not just concentration. 

It is weight-amplified performance dispersion. 

IV. Breadth and Liquidity: Gains with Caveats

Figure 4

The PSE’s market breadth improved modestly in February, extending January’s gains and helping buoy sentiment for the first time since 2019. (Figure 4, topmost diagram) 

Main board volume rose 16%, marking its second consecutive year of improvement. However, aggregate figures mask internal concentration, with ICTSI absorbing a substantial portion of incremental flows. (Figure 4, middle visual) 

Improvements in breadth have not been proportionately reflected in volume distribution or broader technical structures. 

V. Confidence Policy and Market Structure Risk 

The PSEi bottomed in mid-November 2025 — shortly before the appointment of a prominent tycoon to the Finance Department. (Figure 4, lowest image) 

Prior to this, a three-way energy deal involving SMC, MER, and AEV was announced. 

Subsequently:

• Real Property Taxes (RPTs) were suspended for energy firms.
• GEA-ALL subsidies to renewables were shifted to consumers.
• Banking system net claims on government surged to record highs in December. 

These are not neutral developments.

Figure 5

Expanded fiscal financing through the banking system injects liquidity that can spill into asset markets. (Figure 5, topmost window) 

Support measures for key corporates improve earnings visibility and collateral value. 

Infrastructure and energy subsidies reinforce balance sheet narratives for dominant index constituents. 

San Miguel shares initially led the PSEi 30 higher in Q4 2025 but have since given up more than half of their gains. (Figure 5, middle graph) 

MER and AEV shares joined the shindig along with the PSEi 30. (Figure 5, lowest chart) 

In this context, confidence appears to be a central component of policy transmission—whether through the Bangko Sentral ng Pilipinas or the Department of Finance—aimed at stabilizing sentiment, supporting collateral values, and encouraging distributional effects into GDP. However, confidence-driven liquidity does not eliminate underlying structural fragility, particularly in a concentrated and thin market environment. 

It merely elevates sensitivity to shocks. 

VI. Middle East War: Geopolitical Energy Shock and Philippine Macro-Financial Vulnerabilities 

The renewed outbreak of conflict in the Middle East involving the United States, Israel, and Iran introduces immediate geopolitical risk premia into global markets, with energy serving as the primary transmission channel. 

However, the duration of the conflict matters significantly. A short-lived escalation may generate temporary price spikes, while a prolonged confrontation would embed a more persistent risk premium across commodities and financial assets.

Globally, any credible threat to Iranian production—or worse, disruption of the Strait of Hormuz—could trigger sharp upside volatility in oil prices. Roughly 20% of the global oil supply passes through the Strait of Hormuz.  Even without a physical blockade, elevated risk alone tightens supply expectations and lifts futures curves. 

Higher crude prices would feed into transportation, manufacturing, and electricity costs, raising the probability of a renewed inflation impulse. 

Central banks could face a stagflationary dilemma: tolerate higher inflation or tighten policy into weakening growth. 

Financial markets would likely reflect classic risk-off dynamics—strength in oil and gold, alongside pressure on broad equities, particularly in energy-importing economies. 

For the Philippines, these global effects would be amplified by structural vulnerabilities. As a net oil importer, higher crude prices would directly raise domestic fuel, power, and logistics costs. According to the World Bank, Philippines net imports of energy use amounts to 54% as of 2022. 

This would place upward pressure on CPI and household expenses, further squeezing consumption—the (savings-investment gap) backbone of Philippine GDP. 

It would also increase pressure on debt-financed deficit spending, particularly as fiscal financing partly relies on foreign portfolio and external savings to bridge funding gaps. Higher global rates and a weaker peso could raise borrowing costs and heighten refinancing risks. 

A widening trade deficit driven by higher import bills would likely weaken the peso, reinforcing imported inflation pressures. 

This dynamic complicates policy for the Bangko Sentral ng Pilipinas. Any resurgence in inflation expectations could delay easing or necessitate tighter financial conditions, raising borrowing costs for property, consumer credit, leveraged corporates, and public finance. The resulting environment carries stagflationary characteristics: slower growth combined with sticky prices, increasing duration risk, interest-rate volatility, and credit risk across the financial system and the broader economy. 

As such, equity implications would be uneven—mostly adverse.

Figure 6

Energy and mining shares may respond positively to higher commodity prices, particularly upstream oil and gas producers and exploration firms that directly benefit from rising metal and crude prices. (Figure 6, upper chart) 

The Philippine mining and oil index has already been outperforming and diverging from the PSEi 30, suggesting early sectoral rotation toward commodity-linked exposures. Escalation in the Middle East would likely reinforce this divergence by sustaining risk premia in the gold and energy markets. (Figure 6, lower graph) 

In contrast, downstream refiners, distributors, and power utilities—especially those operating under regulated tariffs or fixed contracts—may face margin compression as input costs rise faster than they can be passed through. 

Transport, logistics, and consumer-facing sectors would similarly come under pressure from elevated fuel and operating expenses, alongside a further erosion of household purchasing power. 

At the macro level, sustained deficit financing in a higher-rate environment could intensify crowding-out effects, as government borrowing absorbs liquidity that might otherwise support private sector investment. Combined with a declining standard of living and rising cost pressures, this raises the risk of credit stress and higher default rates across vulnerable households and leveraged firms. 

An additional layer of vulnerability lies in Overseas Filipino Worker (OFW) remittances. The Middle East remains a major employment hub for Filipino workers. Escalation or regional instability could disrupt employment conditions (estimated 2.2 million OFWs in the Middle East), delay remittance flows, or prompt repatriation risks. While remittances have historically shown resilience even during regional tensions, heightened uncertainty could dampen household confidence and consumption at the margin—particularly when layered onto rising domestic inflation. 

In sum, the conflict raises the probability of a commodity-driven inflation shock superimposed on already liquidity-sensitive markets. 

For the Philippines, the combined pressures of higher oil prices, currency weakness, policy constraints, and potential remittance volatility point to heightened market volatility and widening sectoral divergence amid slowing GDP growth. This increases stagflationary and credit risks. 

In such an environment, tactical positioning and selective exposure are likely to be more prudent than broad-based risk allocation. 

VII. Conclusion: When Index Strength Outruns Market Health 

The PSEi 30’s early-year advance is best understood as a liquidity-driven, weight-amplified rally rather than evidence of systemic market strength. With ICTSI alone approaching one-fifth of total index weight and the top five constituents exceeding half of the index, performance has become increasingly mechanical—driven by where liquidity concentrates, not how widely it is distributed. 

This structure matters. In a cap-weighted index operating within a thin market, marginal flows into heavyweight stocks can produce outsized headline gains even as broader conditions remain fragile. 

As geopolitical risks intensify—particularly through energy prices, inflation pressures, and policy constraints—the same index mechanics that amplified the rally could just as easily magnify downside volatility. 

In this context, selective and tactical exposure is more defensible than broad risk allocation. Headline strength may persist, but it should not be mistaken for resilience.

Philippine PSEi 30’s Crash: Worst January Performance Since 2008 and Asia’s Laggard — A Liquidity-Driven Meltdown?

The stock market's job is to always make you feel like you are missing out on something. The stock market's job is to always make you feel like you should be doing something. The stock market's job is to get you to do the wrong thing at the wrong time—Ian Cassel

In this issue 

Philippine PSEi 30’s Crash: Worst January Performance Since 2008 and Asia’s Laggard — A Liquidity-Driven Meltdown?

I. A Lowly Voice in the Wilderness

II. January as Template for 2025 Performance

III. Double Top Pattern?

IV. Was The Selloff Driven By Escalating Liquidity Strains? San Miguel: The Canary in the Coal Mine?

V. Price Distortions from the Changes in PSE’s Membership Amplified the Market’s Volatility

VI. Summary and Conclusion

Philippine PSEi 30’s Crash: Worst January Performance Since 2008 and Asia’s Laggard — A Liquidity-Driven Meltdown?

The Philippine equity benchmark plummeted 10.2% in January, making it the worst performer in Asia. It was also the largest loss in the history of January since 2008. Could escalating liquidity strains be the driving force?

I. A Lowly Voice in the Wilderness 

First, the appetizer. 

Let’s revisit a few quotes from our previous posts when everyone was predicting a new bull market for the PSEi 30, with expectations of it reaching 7,500 in October. (bold and italics original) 

In the backdrop of lethargic volume, concentrated activities, and a rising share of foreign participation, a continuation of global de-risking and deleveraging translates to more liquidations here and abroad, which could expose many skeletons in the closet of the Philippine financial system. August 4, 2024 

...

The public has been largely unaware of the buildup of risks associated with pumping the PSEi 30, driven by a significant concentration in trading activities and market internals 

The market breadth exhibits that since only a few or a select number of issues have benefited from this liquidity-driven shindig, the invested public has likely been confused by the dismal returns of their portfolios and the cheerleading of media and the establishment. September 15, 2024

... 

Bottom line: The levels reached by the PSEi 30 and its outsized returns attained over a few months barely support general market activities, which remain heavily concentrated on the actions of the national team and volatile foreign fund flows.  

Instead, the present melt-up represents an onrush of speculative fervor driven by the BSP’s stealth liquidity easing measures, even before their rate cut. Moreover, real economic activities hardly support this melt-up. October 7, 2024 

...

Given the current global and domestic economic imbalances, the Year of the Snake may again usher in another period of heightened risk and potential volatility. January 19, 2025 

Next, the main course.

II. January as Template for 2025 Performance

The Philippines' main equity benchmark, the PSEi 30, plunged by 4.01% on the last trading day of January, dragging its weekly return to -6.9%, marking its fourth consecutive week of decline.

Figure 1

For the month, the PSEi 30 suffered a 10.2% loss Month on Month (MoM), its most significant monthly decline since the 12.8% crash in September 2022. Annually, it was down by 11.8%.

January is supposed to be the best month for the PSE, rising 9 times in 13 years, with an average return of 0.94%, including 2025.

Yet, returns have been declining both monthly and annually for the past decade and so. (Figure 1, upper window) 

True to the volatility of the Snake Year, 2025's 10.2% plunge on January 10 was the worst since 2008, during the Great Financial Crisis, which resulted in a 48% decline and the lowest PSEi 30 level since 2012. (Figure 1, lower image) 

Yet, if history were to rhyme, and if January’s performance serves as a template for 2025, it wouldn’t be surprising if the PSEi 30 faces a substantial setback.

Figure 2

As a result of this week’s thrashing, the Philippine PSEi 30 was the worst-performing Asian bourse. Ten of 19 national indices were down, one remained unchanged, with average returns at -0.41%. (Figure 2, topmost graph)

For January, with 10 of 19 national indices down and a YTD change of -0.5%, the Philippine PSEi 30 was the region's laggard. (Figure 2, middle chart)

Major ASEAN bourses, such as Thailand’s SET and Malaysia’s KLCI, were the weakest links in both weekly and monthly outcomes. (Figure 2, lowest diagram)

Could these be emerging signs of an Asian Financial Crisis 2.0?

III. Double Top Pattern? 

This week’s meltdown breached two minor support levels and now seems poised to challenge the October 2022 low.

Figure 3

From a technical analysis standpoint, the PSEi 30 is facing the potential of a 'double top' pattern, where a breakdown below the October low could lead to a retest of the March 2020 level. (Figure 3, upper image)

The panic selling suggests that a significant oversold rebound might be imminent, though the durability of this recovery could be suspect.

IV. Was The Selloff Driven By Escalating Liquidity Strains? San Miguel: The Canary in the Coal Mine?

Mainstream explanations for the selloff have often been influenced by the availability bias or "when people overweight new information or recent events" (Investopedia)

Could the recent sell-offs be attributed to the substantial shortfall in Q4 and 2024 GDP (a development we had anticipated)? 

Was it influenced by Trump's tariff threats or the Federal Reserve's pause in their easing cycle? 

Or might domestic politics play a role? Specifically, the threat by the BBM administration to shut down the government if the Supreme Court rules in favor of appellants challenging the constitutionality of their controversial budget, or the impending Food Emergency Security measure on rice, set to be implemented on February 4, 2025. 

Our best guess is that while these factors might have some influence, a more critical driver of the market turmoil could be the escalating pressures on financial liquidity. 

Unlike the 2022 episode, where inflation and rising interest rates were significant factors, the current scenario mirrors the dynamics of the pandemic recession—where the PSEi 30 declines despite monetary easing aimed at combating a recession. (Figure 3, lower graph)

Currently, the GDP growth rate has been decelerating.

Figure 4

Moreover, bank liquidity has been worsening as of November, due to investments in Held-to-Maturity (HTM) assets and undisclosed Non-Performing Loans (NPLs). The cash-to-deposits and liquid assets-to-deposits ratios have been on a long-term downtrend, with the former at its lowest level in over a decade. (Figure 4, topmost graph) 

As a reminder, the BSP cut official rates in August, October, and December. It also reduced RRR rates in October, while the aggregate fiscal spending in 11-months reached all-time highs (ATHs), signaling massive stimulus. 

Contrary to mainstream expectations, the BSP’s accommodative monetary policy has led to an increase in Treasury bond yields rather than a decrease. (Figure 4, middle image) 

This rise is influenced not only by the Federal Reserve's policies but also by domestic inflation, which has been incrementally rising. 

Additionally, the yield curve for local Treasuries has steepened significantly, indicating heightened inflation risks. (Figure 4, lowest chart) 

Lastly, San Miguel’s deviation from the recent market uptrend might have served as the canary in the coal mine, signaling potential broader market distress. 

Also from last October 7, 2024 

Finally, SMC share prices continue to move diametrically opposite to the sizzling hot PSEi 30. (Figure 7, lowest graph)  

What gives? Will SMC’s debt breach the Php 1.5 trillion barrier in Q3?    

Have SMC’s larger shareholders been pricing in developing liquidity concerns? If so, why are bank shares skyrocketing, when some of them are SMC’s biggest creditors?

Figure 5

San Miguel’s share price was one of the biggest casualties, diving below the panic levels of March 2020.  (Figure 5, upper window) 

Its market capitalization plunged to Php 155 billion while grappling with a debt of Php 1.477 trillion. Falling equity and rising debt—what could go wrong? 

Could there be domestic funds facing liquidity constraints, forced to raise cash quickly by selling at any price?  And has this liquidation exacerbated San Miguel’s financial dilemma?

V. Price Distortions from the Changes in PSE’s Membership Amplified the Market’s Volatility

Lastly, the reconstitution of the PSEi 30 has contributed to market volatility.

The inclusion of AREIT and China Banking Corporation (CBC), which will replace Wilcon (WLCON) and Nickel Asia (NIKL) effective February 4, 2025, resulted in steep declines for the outgoing stocks: WLCON fell 10.16%, and NIKL plummeted 30.2%. (Figure 5, lower graph)

Meanwhile, funds tracking the PSEi 30 rotated into CBC (+33.81%) and AREIT (+4.74%).

Figure 6

Fundamentals hardly explain the irrational share price behavior of the affected firms. 

CBC’s parabolic move has turned it into a meme stock or crypto, even as the share prices of its peers have tumbled.

In the meantime, it also doesn't explain the sharp drop in NIKL's price. Although nickel prices have been on a downtrend, they have not collapsed. (Figure 6 topmost pane)

Shares of competitors FNI and MARC were down 1.96% and 8.96%, respectively, WoW. (Figure 6, middle graph)

In short, the PSE's proclivity to chase top performers while discarding laggards has only amplified the price distortions within the PSEi 30. 

VI. Summary and Conclusion

The January 2025 meltdown has brought to light the deteriorating fundamentals underlying the Philippine financial markets and economy. 

This crisis is not isolated to the Philippine Stock Exchange (PSE) but also resonates with some ASEAN counterparts. Could this be emerging signs of Asian Crisis 2.0? 

If historical trends of January and the volatility associated with the Year of the Snake are to repeat themselves, and if the double top pattern materializes, this suggests a significant deficit or loss for the PSEi 30 by the end of 2025. 

Could the recent turmoil in the PSEi 30 be indicative of escalating liquidity pressures among domestic fund managers? 

If this is the case, future stress could manifest in the treasury market and influence the US dollar-Philippine peso exchange rate $USDPHP. 

Certainly, given that the PSEi 30 has become heavily oversold, a notable rebound might be anticipated. However, this scenario presents not an opportunity for accumulation but rather for liquidation. 

Unless one is an expert in scalping, short-term trades involve significant risks (Figure 6, lowest chart)

Remember, cash remains the best defense against a bear market—whether through foreign exchange (FX) accounts or Treasury bills (T-bills).

___ 

Disclosure: The author holds a small position in NIKL as of the time of writing.

Trump's Inauguration: Declares War on Interest Rates; Philippine Peso Rallies, Treasury Yields Steepen, While PSEi 30 Lags Behind Asian Peers

 

Speculation is a name given to a failed investment and… investment is the name given to a successful speculation–-Edward Chancellor 

Trump's Inauguration: Declares War on Interest Rates; Philippine Peso Rallies, Treasury Yields Steepen, While PSEi 30 Lags Behind Asian Peers

In this issue

I. Year of the Snake: Trump’s Baptism of Fire:  Declares War on Interest Rates 

II. Asian Markets Embraces Trump’s Inaugural Risk-On Rally: Stronger Currencies, Falling Bond Yields, and Equity Gains 

III. Philippine Peso Rallies as the Philippine Raises in $3.29 Billion in Bonds, Yield Curve Steepens 

IV. The PSEi 30 Misses out on the Electrifying Surge in Global Risk-Taking Appetite; the January Effect and More on the Chinese Zodiac Cycle 

V. Will This Week's Q4 GDP Announcement Alter the PSEi 30's Pervasive Negative Sentiment? 

VI. PSE Activities: Financial Casino for the Big Boys 

VII. Foreign Selling Drives PSEi 30 Decline, Low Savings Contribute to Thin Market Volume and the Sunk Cost Fallacy 

Trump's Inauguration: Declares War on Interest Rates; Philippine Peso Rallies, Treasury Yields Steepen, While PSEi 30 Lags Behind Asian Peers

Trump 2.0 opens with a declaration of war against interest rates. Global and Asian markets cheer. The Philippine peso rallies, the Treasury yield curve steepens, while the PSEi 30 trails behind its Asian peers.

I. Year of the Snake: Trump’s Baptism of Fire:  Declares War on Interest Rates

Donald Trump kicks off his presidency with a bang. 

He fired his opening salvo against the U.S. Federal Reserve, demanding they slash interest rates and threatening to raise tariffs on OPEC members if they fail to lower oil prices. 

In a video message to the World Economic Forum (WEF) in Davos, Switzerland, he stated(via Reuters): "I'll demand that interest rates drop immediately. And likewise, they should be dropping all over the world. I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil." (bold and italics mine) 

He also softened his stance on China, refraining from arbitrarily imposing tariffs.

Bloomberg/Yahoo Finance reported: "We have one very big power over China, and that’s tariffs, and they don’t want them," the U.S. leader told Fox News host Sean Hannity in an interview that aired Thursday in the U.S. "And I’d rather not have to use it. But it’s a tremendous power over China." (italics mine)

Either Trump’s advisors suggested that slashing interest rates could slow inflation, or, as we noted two days before the U.S. election, tariffs were seen as an instrument or tool for his trade policies, much like in Trump 1.0. 

Perhaps also, in recognition that ongoing wars contribute to supply disruptions and thus influence interest rates, President Trump suspended foreign aid for 90 days.

This move could apply pressure on both Ukraine and Israel in their pursuit of continued warfare or military objectives. The U.S. government has provided billions in financing and material support to sustain the conflicts in Ukraine (at least USD 69.5 billion according to the U.S. State Department) and Israel (USD 12.5 billion as reported by the Council on Foreign Relations).

If we are not mistaken, most of the critical actions taken during his first week were interconnected and could have been designed to curb inflation and lower interest rates. 

However, Trump has been notably reticent about addressing the snowballing deficit spending, which is currently at an all-time high. 

With the possibility of easy money in the air, U.S. and global markets celebrated Trump’s inauguration. The major U.S. equity benchmark, the S&P 500, hit a record high, while Bitcoin neared its all-time high, and the crypto market entered a hyper-volatile phase. The US oil benchmark, WTIC, fell 3.5% over the week. 

According to the Wall Street Journal, "The crypto industry eagerly awaited Donald Trump’s return to the White House. Now, it’s reeling after the president and first lady launched a pair of meme coins. Dubbed $TRUMP and $MELANIA, the tokens serve no economic purpose—their value is largely driven by internet meme popularity. Since their launch Friday night, the market cap of the president’s coin has surged to $8.4 billion, while the first lady’s token is valued at approximately $800 million, according to CoinMarketCap." (italics mine) 

Trump's ascension has ignited hyper-volatility in the crypto sphere, epitomizing the intensification of resource misallocation, symptomatic of an entrenched and deepening global speculative mania. 

Is this a sign of its terminal phase? 

Similarly, as stated last week, Trump’s administration, which begins in the Year of the Snake, "promises to be a period of intense geopolitical activity, where traditional alliances might be tested, and new power dynamics could emerge, all under the ambitious and often unpredictable deal-making leadership." 

Trump’s first week in office marked a baptism by fire for geopolitics, the global economy, and financial markets. 

Of course, one week doesn’t make a trend.

II. Asian Markets Embraces Trump’s Inaugural Risk-On Rally: Stronger Currencies, Falling Bond Yields, and Equity Gains 

How has all this affected Asia?

Figure 1

First, the U.S. Dollar Index $DXY fell by 1.8%, marking its largest weekly drop since November 2023, primarily due to a 2.2% gain in the euro $EURUSD.

The DXY, an index measuring the U.S. dollar's value against a basket of foreign currencies, fell from a two-year high. This drop might reflect overbought conditions or could be a relief countertrend activity spurred by Trump's actions. 

Despite this, the sinking dollar lifted all Asian currencies quoted by Bloomberg. The U.S. dollar weakened most against the Malaysian ringgit $USDMYR, Thai baht $USDTHB, and South Korean won $USDKRW. (Figure 1)

Figure 2

Next, the U.S. Treasury market hardly reacted to the dollar’s steep decline, with yields on 10-year notes falling only marginally. 

However, yields on most ASEAN treasuries dropped significantly, or ASEAN bond prices rallied strongly. The Philippines, in particular, mirrored its U.S. Treasury counterpart $TNX. (Figure 2)

Figure 3

Lastly, with the prospect of easy money, 13 of the 19 national indices in Asia closed the week higher, averaging a 0.73% return in local currency terms. Sri Lanka’s Colombo and Mongolia’s MSE both hit their respective all-time highs. Sri Lanka, Japan's Nikkei 225, and Hong Kong's Hang Seng Index were among the top performers for the week. (Figure 3, upper window) 

Rallies in Japan and Hong Kong benchmarks reached the resistance levels of their respective trading ranges. (Figure 3, lower chart) 

III. Philippine Peso Rallies as the Philippine Raises in $3.29 Billion in Bonds, Yield Curve Steepens

And what of the Philippines? 

Figure 4

Despite a strong rally among its regional peers, the USD-PHP exchange rate slipped by 0.56% week-over-week, largely due to a 0.7% rally on Friday. (Figure 4, topmost image) 

This comes amidst the National Government's successful $3.29 billion bond sale, which included U.S. dollar and euro-denominated bonds, some of which were sustainability-focused offerings. The funds raised are intended to help finance the government’s budget, according to Reuters and Interaksyon. 

Muted gains, despite significant U.S. dollar and euro inflows for Q1 2024? There could be more borrowings in the coming two months. 

For example, the Bangko Sentral ng Pilipinas (BSP) reported $3.21 billion in approved foreign borrowings for Q4 2024: "For the period from October to December 2024, the Monetary Board approved six (6) public sector medium- to long-term foreign borrowings, amounting to $3.21 billion. This is 3.35% (or $0.11 billion) lower than the $3.32 billion in foreign borrowings approved for the same period last year." (italics added) 

Approved loans have been on an upward trend since at least Q4 2022, with a notable spike in Q1 2023, followed by a dip in Q2 before continuing to trend higher. (Figure 4, middle diagram) 

These approved loans are part of the BSP’s external borrowings, meaning higher debt loads will result in higher debt-servicing costs, which include both principal repayment and interest expenses—exacerbating the Philippines’ US dollar "short" conditions. (Figure 4, lowest graph) 

Furthermore, National Government borrowings deposited with the BSP should contribute to the Gross International Reserves (GIR), though this represents "borrowed reserves" that require debt servicing. 

The focus on maintaining benchmarks to project an image of sound macroeconomics is, in reality, more of a façade.

Figure 5

Secondly, not only have Philippine treasury rates been climbing from the belly to the long end of the yield curve, but they have also been transitioning into a bearish 'steepener,' with short rates reflecting the BSP's insistence on continuing its easing cycle, which raises inflation risks. 

Unknown to the public, this may be linked to the administration’s proposed "food security emergency," which was initially scheduled for implementation on January 22nd but has since been delayed "due to non-transmittal of documents," or legal technicalities. 

Like Trump, local authorities aim to curb inflation through a combination of quasi-price controls and by injecting government reserves into the marketplace under the guise of a "food security emergency". 

However, this approach fails to address the demand component, which is evidenced by record-high bank lending, unprecedented levels of public sector spending resulting in all-time high public debt, and historically high nominal liquidity conditions. 

Moreover, it misunderstands the dynamic nature of human actions, where suppressing activity in one area can lead to complex, unpredictable "multiplier" feedback loops (or second to nth-order effects) that ultimately undermine the original intent or objective. 

The effort to suppress interest rates through the "food security emergency" reflects the administration’s entrenched belief in "free lunch" politics, which the markets have resisted. 

IV. The PSEi 30 Misses out on the Electrifying Surge in Global Risk-Taking Appetite; the January Effect and More on the Chinese Zodiac Cycle

The Philippine equity benchmark, the PSEi 30, missed out on the adrenalin-powered risk-taking appetite following Trump’s inauguration and his push for a return to a global free-money regime.

Among Asia’s 19 national indices, it was one of the six equity laggards—an outlier. 

The PSEi 30 fell by 0.88%, marking its third weekly drop and pulling down its year-to-date performance to -3.56% with only a week left in January. 

The "January effect" has traditionally dominated the PSEi 30’s first-month performance, with only three declines in the last 12 years (since 2013). (Figure 5, middle pane) 

While a strong January doesn't necessarily guarantee positive annual returns, historical data shows that after three negative Januarys—2016, 2020, and 2021—the market experienced negative annual returns. Therefore, if this pattern and correlation holds, a deficit in the PSEi’s performance this January could signal that the negative trend may persist through the year. 

Moreover, January's positive returns have been slowing over time. 

Still, when viewed from the perspective of the Chinese Zodiac cycle, which follows the lunar-solar calendar rather than the contemporary Gregorian calendar, the Chinese New Year typically falls between January 21 and February 20. 

Therefore, in this context, examining PSEi 30 returns for the Year of the Snake from February to February reveals heightened volatility with a downside bias emerges: +16.7% in 1989, -12.85% in 2001, and -4.4% in 2013. 

V. Will This Week's Q4 GDP Announcement Alter the PSEi 30's Pervasive Negative Sentiment? 

The Philippine Statistics Authority (PSA) is scheduled to announce the Q4 and annual GDP figures on January 30.

In any case, the PSEi 30's weakness have emerged even before the GDP announcement. 

Historically, the week prior to the GDP release has typically resulted in positive returns, with twelve out of twenty pre-GDP weeks since 2020 showing gains. (Figure 5, lowest chart) 

On average, this has resulted in a 0.67% gain up to last week. 

That said, the PSEi 30 has suffered four consecutive negative performances in the past four pre-GDP weeks, which has weighed on its average returns amid a backdrop of slowing GDP growth.

VI. PSE Activities: Financial Casino for the Big Boys 

While the public often views the PSEi 30 as a barometer of the "market," it is important to recognize that only a few stocks drive its performance.

Figure 6

Despite the index’s recent losing streak, the top five market heavyweights still accounted for 51.7% of the index as of January 24, while the top 10 had a combined 74.1% free-float-adjusted weight. (Figure 6, upper image) 

This degree of concentration does not operate in isolation; the top 10 brokers accounted for 57.7% of this week’s trades, primarily driven by institutional brokers. 

The top 10 and 20 most traded issues made up 65.9% and 82.2% of main board volume, respectively. 

These figures highlight the concentration of trading activities among a limited set of entities, with minimal participation from retail investors and punters. 

Our humble guess is that PSE trades are dominated by third-party depository institutions like banks and other financial institutions, which constitute our "national team," operating under the indirect behest of the BSP to support the Philippine stock market. 

Since 2020, the steep bear market rallies of the PSEi 30 have been dominated by local financial institutions. 

Aside from the post-recess "afternoon delight" phenomenon, this explains the significant use of the pre-closing 5-minute floating period for both pumps and dumps (mostly pumps) to shape the PSEi’s end-of-day outcome. 

Apart from this, the establishment's embrace of "benchmarkism" or status signaling through market or economic symbols has been evident in the membership mechanics of the PSEi 30 composite.

The Philippine Stock Exchange (PSE) constructs the PSEi 30 not just to favor companies with strong price performance, but also to serve as a "moat for elite-owned and controlled firms," as we pointed out back in February 2023. 

The PSE announced changes in the PSEi 30 membership last week. It removed price laggards, including Wilcon Depot, from the downstream real estate services sector, and Nickel Asia from the nickel mining sector. 

They were replaced by AREIT, an Ayala-owned Real Estate Investment Trust, and the high-flying China Banking Corp (CBC), thereby expanding the Sy Group's influence with a second bank in the PSEi 30, effective February 3, 2025. (Figure 6, lower chart) 

Still, with low domestic savings to support stocks, foreign money flows play an instrumental role in determining the outcome of the PSEi and the PSE. 

It goes without saying that the recent sell-offs have resulted from foreign money outflows that have overwhelmed the low savings and insufficient use of credit by the 'national team' and local punters to support the index. 

VII. Foreign Selling Drives PSEi 30 Decline, Low Savings Contribute to Thin Market Volume and the Sunk Cost Fallacy

Figure 7

This week's net foreign selling of Php 1.9 billion accounted for 9.3% of gross volume. Over the last three weeks (YTD), net foreign outflows have represented 8.8% of the gross volume, which have coincided with the PSEi 30's breakdown from 6,529 in 2025. (Figure 7, topmost window) 

Although seventeen of the thirty issues closed the week lower, averaging a 0.92% decrease, the performance of the top 5-6 biggest market cap issues determined the 0.88% fall of the PSEi 30 based on free-float adjusted performance. (Figure 7, middle graph)

In short, gains from SM and BPI were insufficient to offset the declines of ICT, BDO, SMPH, AC, and ALI. 

The broader market sentiment was similarly fragile, with declining issues outnumbering advancing issues on all five trading days last week. Declining issues led by 86. This negative trend has been ongoing since the start of the year. 

On a sectoral basis, while SM led holding firms gained with 0.2%, the material declines of ICT (-3.46%) weighed on services (-2.02%), and SMPH (-3.05%) and ALI (-2.33%) pulled down the property sector (-1.99%). 

Once again, this downturn coincides with eroding volume. Main board volume slumped 21.14%, from Php 4.8 billion to Php 3.8 billion. (Figure 7, lowest diagram) 

Overall, with current "trickle-down" political-economic dynamics leading to an unparalleled savings-investment gap, the PSEi 30 would find scarce support from diminishing savings, accompanied by rising risks of debt-financed malinvestments. 

Despite support from the "National Team," which only compounds capital goods mispricing and amplifies resource malinvestments, this merely delays the inevitable: an unpalatable market clearing process or an unpleasant rectification of past mistakes. 

The first law of holes states, "If you find yourself in a hole, stop digging." Yet, the sunk-cost fallacy ensures that the mainstream will remain in vehement denial and persist in digging deeper.