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. 

---

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

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

A lack of transparency results in distrust and a deep sense of insecurity — Dalai Lama 

In this issue

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

I. PSEi 30 Q2 2025: The Illusion of Resilience

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

IB. Structural Downtrend and Policy Transmission Breakdown

IC. Real Value Output in Decline, Political Optics and GDP Credibility

ID. Meralco’s Electricity Consumption Story: A Broken Proxy

II. Real Estate: The Recovery That Wasn’t

IIA. Overton Window vs. Market Reality

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

III. Retail and Food Services: Mixed Signals

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration

IV. Banking Revenues and Income: A Stalling Engine

IVA. Banking Sector: Credit Surge, Revenue Stall

V. The PSEi 30 Net Income Story

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation?

VB. SMC’s Financial Engineering? Escalating Systemic Risk

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

____

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong 

Beneath headline growth lies a fragile mix of policy stimulus, rising leverage, and mounting stagnation—masking systemic fragility. 

I. PSEi 30 Q2 2025: The Illusion of Resilience 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on same year index members; may include revisions to past data

1B: Historical comparison; includes only members present during the end of each respective period; based on unaudited releases

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

Q2 GDP at 5.5%?   

On paper, that should have translated into strong corporate earnings—especially when juxtaposed with the financial pulse of the PSEi 30. 

Yet that headline growth masks a deeper dissonance: These firms, positioned as frontline beneficiaries of BSP’s easing cycle and historic deficit spending, should have reflected the policy tailwinds.

Figure 1

Instead, the disconnect is glaring: while nominal GDP surged 7.2% in Q2 and 7.4% in H1, aggregate revenues of the PSEi 30 contracted by 0.3% in Q2 and barely budged at 1.7% for the first half. (Figure 1, upper graph) 

IB. Structural Downtrend and Policy Transmission Breakdown 

More troubling, this isn’t a one-off anomaly. 

2025’s performance merely extends a structural downtrend that peaked in 2022—raising uncomfortable questions about transmission mechanisms, institutional fragility, and the real beneficiaries of expansionary policy. 

Consider this: Universal bank credit hit a historic high in June 2025, with 12.63% growth, the fastest pace since 2022. Yet PSEi 30 revenue growth in H1 limped to just +1.7%. The juxtaposition is telling. (Figure 1, lower window) 

Rather than fueling productive consumption or corporate expansion, credit appears channeled into asset churn and balance sheet patchwork—rolling debt, patching liquidity gaps, gaming duration mismatches. It’s a kinetic mirage, where velocity substitutes for vitality—hallmarks of overleveraging and diminishing returns. 

The very tools meant to stimulate growth now signal policy transmission failure, where liquidity flows but impact stalls. 

IC. Real Value Output in Decline, Political Optics and GDP Credibility 

Worst still, when adjusted using the same deflators applied to GDP, the PSEi 30’s real output doesn’t just stagnate—it slips into quasi-recession. Both Q2 and H1 figures turn negative, ≈ -2% and -.4%, exposing a structural rot beneath the nominal gloss. (Note 1)

Figure 2 

And this isn’t a statistical fluke. 

A full third of the index—10 out of 30 firms—posted revenue contractions, led by holding firms San Miguel, Alliance Global, and Aboitiz Equity. These aren’t fringe players—they’re positional market leaders. (Figure 2, upper table) 

As a side note, AGI’s revenue decline was partly driven by the deconsolidation of Golden Arches Development Corp, following its reclassification as an associate in March 2025 (Note 2) 

The gap is too wide, too persistent a trend, to be dismissed as cyclical noise. 

Was the PSEi 30 shortfall simply papered over by government spending, with a boost from external trade? 

Or was GDP itself inflated for political ends—to justify lower interest rates, defend the proposed Php 6.793 trillion 2026 budget (+7.4% YoY), and tighten the administration’s grip on power? 

Most likely, the truth lies in some combination of both. 

ID. Meralco’s Electricity Consumption Story: A Broken Proxy 

That’s not all. 

Meralco’s electricity sales volume contracted −0.33% YoY in Q2, dragging H1 growth down to a mere +0.51%. This isn’t just a soft patch—it’s historic: 

• First Q2 contraction since Q1 2021,
• First negative H1 since 2020, —both periods marked by pandemic-induced recession. 

More tellingly, Meralco’s quarterly GWh chart—once a reliable proxy for real GDP—has broken correlation. The divergence, which began in Q1 2024, has now widened into a chasm. (Figure 2, lower chart) 

To compound this, peso electricity peso sales shrank by 1.74% in Q2, and Meralco’s topline declines—both in pesos and GWh—dovetailed with the 8% sales slump in aircon market leader Concepcion Industries Corporation, as we discussed in an earlier post. (see references) 

When electricity consumption decouples from GDP, it raises uncomfortable questions: 

• Is real consumption being overstated? 
• Are headline figures engineered to justify policy optics—lower rates, ballooning budgets, and political consolidation? 

The numbers suggest more than statistical noise. They hint at a manufactured narrative, where growth is declared, but not felt. 

II. Real Estate: The Recovery That Wasn’t 

IIA. Overton Window vs. Market Reality 

There’s more. The public has recently been bombarded with official-consensus messaging about a supposed real estate ‘recovery.’ 

 The BSP even revised its property benchmark to show consistently rising prices—curiously, at a time of record vacancies. (see references) By that logic, the laws of supply and demand no longer apply. 

To reinforce the recovery echo chamber, authorities published modest Q2 and H1 NGDP/RGDP figures of 5.7% and 5.4%, respectively. 

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain 

Figure 3

Yet the hard numbers tell another story: stagnation gripped the top 5 publicly listed property developers—SMPH, ALI, MEG, RLC, and VLL—whose aggregate Q2 revenues grew by a paltry 1.23% YoY. (Figure 3 topmost image)

Adjusted for GDP deflators, that’s a real contraction. In effect, published rent and real estate sales may be teetering on the brink of recession.

The relevance is clear: these five developers accounted for nearly 30% of the sector’s Q2 GDP, meaning their results are a critical proxy for actual conditions—assuming their disclosures are accurate.

Yet, if there’s one metric that’s consistently rising, it’s debt.

Published liabilities surged 5.5% or Php 53.924 billion, reaching a record Php 1.032 trillion in Q2. Meanwhile, cash reserves plunged to their lowest level since 2019. (Figure 3, middle chart)

And yet, net income rose 11.15% to Php 35.4 billion—a figure that invites scrutiny, given flat revenues, rising leverage, and tightening liquidity.

In reality, developers appear forced to draw down cash to sustain operations and patch liquidity gaps, a fragile foundation to prop up the GDP consensus.

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

Worse, the sector’s downstream segment remains mired in doldrums.

Sales of publicly listed market leaders in home improvement and construction supplies—Wilcon and AllHome—fell -1.95% and -22.1% in Q2, respectively. Both chains have been struggling since Q2 2023, but the latest data are striking: despite no store expansion, AllHome reported a -28% collapse in same-store sales, while Wilcon’s growth lagged despite opening new outlets in 2024–2025, underscoring weak organic demand and the record vacancies. (Figure 3, lowest visual)

Strip away the official spin, and the underlying pattern emerges: insufficient revenues, surging debt, and shrinking liquidity. Overlay this with record-high employment statistics, historic credit expansion and fiscal stimulus—what happens when these falters? 

Consumers are already struggling to sustain retail and property demand. Yet, embracing the ‘build-and-they-will-come’ dogma, developers continue to expand supply, worsening the malinvestment cycle: supply gluts, strained revenues, debt build-up, and thinning cash buffers—a crucible for a future real estate debt crisis. 

III. Retail and Food Services: Mixed Signals 

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot 

It’s not all bad news for consumers. 

Some segments gained traction from the “sweet spot” of easy money and fiscal stimulus—manifested in record bank credit and near all-time high employment rates. 

Figure 4

The most notable beneficiaries were non-construction retail chains, where expanded selling space (malls, outlets, stores) lifted revenues. The combined sales of the six listed majors—SM, Puregold, Robinsons Retail, Philippine Seven, SSI, and Metro Retail—rose 8.6% in Q2, their strongest showing since Q2 2023. (Figure 4, topmost graph) 

Still, signals remain mixed. In Q2, retail NGDP slipped to its lowest level since Q1 2021, while real consumer GDP bounced to 5.5%, its highest since Q1 2023. 

Company results reflected this divergence:

• SM: +8.9% YoY (best since Q4 2023)
• PGOLD: +12.3%
• RRHI: +5.9%
• SEVN: +8.6%
• SSI: −1.6%
• MRSGI: +6.6%

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends 

Interestingly, while Philippine Seven [PSE: SEVN] continues to boost headline growth via new store openings, same-store sales have operated in negative territory from Q4 2024 to Q2 2025. This divergence reveals how money at the fringes conceals internal vulnerabilities—weakening demand paired with oversupply. Once the benefit of new outlets erodes, excess capacity will magnify sales pressure, likely translating into eventual losses. (Figure 4, middle pane) 

Even as listed non-construction retail firms outpaced retail NGDP (6.8%) and RGDP (6.15%), their performance only partially resonates with the real GDP dynamic. 

Yet, the embedded trend across retail sales, consumer GDP, and retail NGDP remains conspicuously downward. 

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration 

The food service industry echoes this entropy. Jollibee’s domestic sales grew 10.13% in Q2, pulling aggregate revenue growth of the four listed food chains—JFC, PIZZA, MAXS, FRUIT—to 9.6%, still below the 10.7% NGDP and 8.34% RGDP for the sector. The growth trajectory, led by JFC, continues to decelerate. (Figure 4, lowest diagram) 

Notably, JFC accounted for 86% of aggregate listed food service sales, yet only 54% of Q2 Food Services GDP—a testament to its PACMAN strategy of horizontal expansion—an approach I first described in 2019—enabled by easy-money leverage in its pursuit of market dominance (see references) 

Unfortunately, visibility on the sector is now diminished. Since AGI reclassified Golden Arches (McDonald’s Philippines) as a non-core segment, its performance is no longer disclosed. For reference, McDonald’s sales plunged 11.5% in Q1 2025. 

Losing this datapoint is regrettable, given McDonald’s is Jollibee’s closest competitor and a critical indicator of industry health. 

IV. Banking Revenues and Income: A Stalling Engine 

IVA. Banking Sector: Credit Surge, Revenue Stall 

Finally, despite all-time high loan volumes, bank revenues slowed sharply in Q2—an unexpected deceleration given the credit surge. The top three PSEi 30 banks—BDO, BPI, and MBT—posted a modest 7.02% revenue increase, dragging 1H growth down to 7.99%. For context, Q1 2025 revenues rose by 9%, while Q2 2024 saw a robust 21.8% jump. Full-year 2024 growth stood at 20.5%, making Q2 2025’s performance less than half of the prior year’s pace. 

We dissected the worsening conditions of the banking sector in depth last week (see reference section) 

V. The PSEi 30 Net Income Story 

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation? 

For the PSEi 30, if revenue stagnation already stands out, net income tells a similar story.

Figure 5 

Q2 2025 net income rose by 11.5% (Php 28.7 billion), pulling down 1H income growth to 13.8% (Php 68.6 billion). While Q2 gross net income was the highest since 2020, its marginal increase and subdued growth rates marked the second slowest since 2021. (Figure 5, upper chart) 

The devil, of course, lies in the details. 

The biggest contributor to the PSEi 30’s net income growth in Q2 and 1H 2025 was San Miguel Corp. Its net increase of Php 18.7 billion in Q2 and Php 53.19 billion in H1 accounted for a staggering 65.2% and 77.54% of the total PSEi 30 net income growth, respectively—despite comprising just 8.5% and 11.8% of the index’s gross net income. (Figure 5, lower table) 

In effect, SMC was not merely a contributor but the primary engine behind the index’s earnings rebound.

Yet this dominance raises more questions than it answers.

Despite a sharp revenue slowdown and only marginal improvements in profit margins—still below pre-pandemic levels—SMC reported a substantial jump in cash holdings and a deceleration in debt accumulation. But this apparent financial strength stems not from operational resilience, but from non-core gains: fair value revaluations, FX translation effects, and dividends from associates.

The result is a balance sheet that appears healthier than it is, with cash levels inflated by accounting maneuvers rather than organic surplus.

VB. SMC’s Financial Engineering? Escalating Systemic Risk

Beneath the surface, SMC’s debt dynamics resemble quasi-Ponzi finance—borrowing Php 681 billion to repay Php 727 billion in 1H 2025, while plugging the gap with preferred share issuance and asset monetization. The latter includes the deconsolidation and valuation uplift of its residual stakes in the Ilijan power facility and Excellent Energy Resources Inc. (EERI), as well as the $3.3 billion LNG deal with Meralco and AboitizPower in Batangas. Though framed as strategic partnerships, these transactions involved asset transfers that contributed heavily to the surge in reported profits.

The simulacrum of deleveraging—from Php 1.56 trillion in Q4 2024 to Php 1.506 trillion in Q2/1H 2025—appears to be a product of financial engineering, not structural improvement. This disconnect between reported profitability and underlying liquidity mechanics raises concerns about transparency and sustainability.

In a market where banks, corporates, and individuals hold significant exposure to SMC debt (estimated at 4.3% of June 2025’s total financial resources), the company’s accounting-driven cash buildup may signal escalating systemic fragility—a risk that the recent equity selloff seems to be pricing in ahead of the curve.

Stripped of SMC’s potentially inflated income, Q2 and H1 net income for the PSEi 30 would rank as the second-lowest and lowest since 2021, respectively—underscoring the fragility behind the headline performance.

At the same time, and with curious timing, SMC announced its intent to undertake large-scale flood control across Metro Manila and Laguna—"at no cost to the government or the Filipino people". Whether this reflects a genuine civic gesture or a strategic bid to accumulate political capital remains unclear. But the optics are unmistakable: as SMC’s earnings distort the index’s headline strength, it simultaneously positions itself as a public benefactor.

Yet, is this narrative groundwork for a future bailout, or a preemptive reframing of corporate rescue as national service?

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap 

Finally, let us move on to the PSEi 30’s liquidity metrics: debt and cash. 

If there’s one structurally entrenched dynamic in the PSEi 30, it’s borrowing.

Figure 6

Published short- and long-term debt of the non-financial PSEi 30 surged to an all-time high of Php 5.95 trillion in 1H 2025—up 7.66% year-on-year. (Figure 6, topmost chart) 

The net increase of Php 423 billion amounted to 74.7% of the gross net income and a staggering 617% of the YoY net income increase. 

Including the bills payable of the four PSEi 30 banks—Php 859.7 billion, excluding bonds—total leverage rises to Php 6.8 trillion—with net borrowing gains of Php 760.5 billion, overshadowing declared net income of Php 566.7 billion. 

In short, the PSEi 30 borrowed Php 1.34 to generate every Php 1 in profit—assuming SMC’s profits are genuine. 

And this borrowing binge wasn’t isolated. Among the 26 non-financial firms, 18 increased their debt in 1H 2025. 

On average, debt now accounts for 27% of assets—or total liabilities plus equity. 

SMC, once the poster child of corporate borrowing, ceded the title this period to Meralco, Ayala Corp, and Aboitiz Equity Ventures. (Figure 6, middle table) 

Notably, MER and AEV’s borrowing spree coincides with their asset transfer deals with SMC. Whether this reflects strategic alignment or a quiet effort to absorb or ‘share’ SMC’s financial burden to deflect public scrutiny—such optics suggest a coordinated dance. 

If true, good luck to them—financial kabuki always yields to economic gravity. 

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure 

The thing is, transparency remains a persistent concern, especially in periods of mounting financial stress or pre-crisis fragility. 

First, there’s no assurance that published debt figures reflect full exposure. Some firms may be masking liabilities through other liabilities (leases, trade payables) or off-balance sheet arrangements. 

Second, asset valuations underpinning declared balance sheets may be unreliable. Accounting ratios offer little comfort when market liquidity evaporates—see the 2023 U.S. bank crisis or China’s ongoing property implosion. 

Despite historic borrowing and declared profits, PSEi 30 cash reserves barely budged—up just 0.96% YoY, with a net increase of Php 14.07 billion following two years of retrenchment. Cash levels have been on a steady decline since their 2020 peak. We suspect that recent upticks in cash are not in spite of borrowing, but because of it. 

This growing debt-income-revenue mismatch explains the establishment’s increasingly desperate calls for “MOAR easing” and declarations of a real estate “recovery.” 

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

The PSEi 30’s revenue stagnation belies the optics of headline GDP growth. Even in the supposed “sweet spot”—BSP easing, FX soft-peg subsidies, and record stimulus—consumer strain cuts across sectors.

Stimulus may persist, but its marginal impact is fading—manifesting the law of diminishing returns. The disconnect between policy effort and real economy traction is widening.

Q2 and H1 income growth seem to increasingly reflect on balance sheet theatrics driven more by financial engineering and accounting acrobatics than by operational reality.

When earnings are staged rather than earned, the gap between corporate performance and macro reality doesn’t just widen—it exposes a deepening structural mismatch. 

Deepening leverage also anchors the PSEi 30’s fundamentals. On both the demand and supply sides, debt props up activity while cash thins. The same fragility echoes through the banking system and money supply mechanics. 

This is not resilience—it’s choreography. And when liquidity recedes, the performance ends. 

As Buffett warned: "when the liquidity tide goes out, we’ll see who’s been swimming naked" We might be hosting a nudist festival. 

___ 

Notes: 

Note 1 While GDP measures value-added and corporate revenues reflect gross turnover, applying the same deflators provides a reasonable proxy for real comparison. 

Note 2: Alliance Global 17 Q August 18, 2025: Effective March 17, 2025, GADC was deconsolidated and ceased to be a business segment as it becomes an associate from that date, yet the Group’s ownership interest over GADC has not changed p.2 

References 

Prudent Investor Newsletter, Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum, June 01, 2025 (Substack) 

Prudent Investor Newsletter, Concepcion Industries Cools Off—And So Might GDP and the PLUS-Bound PSEi 30 (or Not?) July 28, 2025 

Prudent Investor Newsletter, The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility, July 13, 2025(Substack) 

Prudent Investor Newsletter, Jollibee’s Fantastic Paradigm Shift: From Consumer Value to Aggressive Debt-Financed Pacman Strategy March 3, 2019 

Prudent Investor Newsletter, Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility, August 17, 2025 (Substack)