Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

 

Bulls of 1929 like their 1990s counterparts had their eyes glued on improving profits and stock valuations.  Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings-Dr. Kurt Richebacher 

In this issue:

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

I. An Extension of 2024's Fiscal-Monetary Interplay

II. Debt-Led Growth: Fragile Foundations

III. Revenue Growth: Record Highs, Diminishing Returns

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

V. Net Income Surge: A Paradox of Profitability

VI. Sectoral Performance: Diverging Trends

VII. Top Movers: Individual Firm Highlights

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage

IX. Transparency and Accuracy Concerns

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

Debt-fueled profits mask deeper signs of strain across retail, real estate, and consumer sectors—even as policy easing and fiscal expansion continue.

I. An Extension of 2024's Fiscal-Monetary Interplay 

The PSEi 30’s Q1 2025 performance is largely a continuation of the trends established throughout 2024 and the past decade. 

Fundamentally, it reflects the model of "trickle-down" economic development, underpinned by Keynesian debt-financed spending. This model is anchored primarily on the BSP’s policy of "financial repression"—or sustained easy money—combined with fiscal stabilizers. It has manifested through the persistent "twin deficits," driven by a record-high "savings-investment gap," and rests on the “build and they will come” dogma. 

Q1 2025 also marks the initial impact of the BSP’s first phase of monetary easing, with Q2 expected to reflect the effects of the second round of policy rate and reserve requirement (RRR) cuts. 

At the same time, the all-time high Q1 fiscal deficit—relative to previous first quarters—was clearly reflected in the PSEi 30’s performance. 

Nota Bene:

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

Chart Notes:

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

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

 II. Debt-Led Growth: Fragile Foundations

Figure 1

In Q1 2025, non-financial debt among PSEi 30 firms surged by 7.6% to a record Php 5.87 trillion, with a net increase of Php 413 billion, marking the third-highest quarterly rise since 2020. (Figure 1, upper window)         

In context, this debt level accounted for about 17.12% of total financial resources (bank and financial assets), up from 16.92% in 2024, reflecting increased leverage in the financial system 

In addition, bills payable for the top three PSEi 30 banks soared by 117.5%, rising from Php 393 billion to Php 854 billion, a net increase of Php 461 billion, excluding bonds payable. 

This dramatic increase in the bank’s short-term borrowing likely stems from a sharp decline in the banking system’s liquidity metrics—specifically, the cash and due-from-banks-to-deposits ratio and the liquid assets-to-deposits ratio. 

III. Revenue Growth: Record Highs, Diminishing Returns 

Gross revenues for the PSEi 30 rose by 3.92% to a record Php 1.78 trillion in Q1 2025. However, the net revenue increase of Php 67 billion was the smallest in the past four years, signaling a clear deceleration in growth momentum. (Figure 1, lower image)

Figure 2

This revenue softness partly reflected disinflationary trends, as the Consumer Price Index (CPI) fell to 2.3%—marking its third consecutive quarterly decline. (Figure 2, topmost chart) 

This occurred despite the economy operating near full employment, with the average unemployment rate at 4%, all-time high Q1 fiscal deficit, and amid record levels of bank credit growth, particularly in consumer lending. (Figure 2, middle graph) 

Nonetheless, the validity of the near-full employment narrative appears questionable. Our estimates suggest that approximately 32% of the workforce remains 'functionally illiterate,' raising concerns about the accuracy of PSA labor market data. 

Yet, the paradox is telling: even with aggressive fiscal stimulus and sustained easy money policies, economic returns appear to be diminishing. 

The PSEi 30’s revenue slowdown closely mirrored real GDP growth of 5.4% in Q1 2025, reinforcing the broader downtrend. (Figure 2, lowest diagram) 

Nevertheless, the PSEi 30 revenues accounted for 27% of nominal GDP in Q1 2025, underscoring their substantial footprint in the Philippine economy. Broadening the scope of PSE-listed firms in national accounts would likely magnify this contribution—while simultaneously highlighting the risks posed by mounting economic and market concentration and the fragile underpinnings of "trickle-down" economic development. 

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

Figure 3

Consumer sector stress was evident in the performance of PSE-listed firms. While retail nominal GDP grew by 7.9% and real consumer GDP by 4.9%, Q1 2025 sales revenue growth for the six largest non-construction listed retail chains—SM Retail, Puregold, SSI Group, Robinsons Retail, Philippine Seven, and Metro Retail Group—slowed to 6.8%, down from 8% in Q4 2024. This deceleration occurred despite aggressive supply-side expansion, underscoring deteriorating growth dynamics. (Figure 3, upper pane) 

Since peaking in 2022, both statistical (GDP) and real indicators (sales) have undergone significant depreciation. Downstream real estate consumer publicly listed retail chains, Wilcon Depot (WLCON) and AllHome (HOME), continue to grapple with substantial challenges, as rising vacancies further deepen the ongoing sales recession. (Figure 3, lower image) 

For example, WLCON reported a 2% quarter-on-quarter increase in store count, but only a 1.2% increase in sales YoY—highlighting excess capacity amid softening demand.

Figure 4

The food services sector also showed signs of strain, despite posting 10.3% revenue growth in Q1 2025—outpacing both nominal and real GDP. (Figure 4, topmost visual) 

Jollibee’s domestic operations, which accounted for 80% of total group sales, led the sector with a 14% gain. 

In contrast, McDonald’s reported an 11.5% sales contraction despite its 'aggressive store expansion' strategy, which includes plans to open 65 new outlets in 2025. This disparity underscores uneven, yet broadly weakening, performance across major retail chains. (Figure 4, middle chart) 

Even electricity consumption has recently deteriorated. Meralco’s electricity consumption growth slowed to 1.5% (in GWh), diverging from historical GDP correlations. This downturn signals weakening underlying demand, despite near-full employment and record-high bank credit expansion. (Figure 4, lowest graph) 

V. Net Income Surge: A Paradox of Profitability

Figure 5

Despite revenue challenges, the PSEi 30’s net income amazingly surged by 16.02% to a record Php 290.6 billion in Q1 2025, with an absolute increase of Php 40.12 billion, the second-highest since 2020. (Figure 5, topmost diagram)

This was driven by a significant increase in net income margin, which reached 16.3%, the highest since 2020, possibly due to asset sales (e.g., SMC’s divestitures). (Figure 5, middle window)

Excluding SMC’s asset sales, PSEi 30’s net income would have stood at Php 269.3 billion—reflecting only a 7.6% increase. This equates to a net profit rise of Php 19.12 billion, rather than the reported Php 40.12 billion

The record Q1 fiscal deficit likely bolstered incomes, both directly through government contracts (e.g., infrastructure projects) and indirectly via increased consumer spending. However, this came at the cost of record public debt and systemic leverage, which reached Php 30.7 trillion. Public debt hit an all-time high of Php 16.683 trillion. (Figure 5, lowest image)

The PSEi 30’s debt-to-net income ratio revealed that Php 1.42 in net debt additions was required for every peso of profit generated. In terms of absolute gains, Php 10.3 in new debt supported each peso of profit increase, highlighting deepening debt dependency.

 

Figure 6 

Paradoxically, despite record borrowing and improved net income, net cash reserves fell to 2022 levels, raising more concerns about systemic liquidity. (Figure 6, upper chart)

VI. Sectoral Performance: Diverging Trends 

By sector:  (Figure 6, lower table) 

Debt: The industrial sector recorded the largest percentage increase at 48.9%, but holding companies led in absolute peso gains Php 165.644 billon, followed by industrials Php 151.4 billion. 

Revenues: Banks achieved the highest percentage revenue growth at 9.8%, but industrials led in nominal terms with Php 17 billion in gains. 

Net Income: Holding and property sectors posted the largest percentage increases at 31% and 7.6%, respectively, with holding firms leading in peso terms Php 33.8 billion. 

Cash: The services sector saw the largest increases in both percentage (30.9%) and peso terms (Php 56 billion). 

VII. Top Movers: Individual Firm Highlights

Figure 7

By firm: (Figure 7, upper table) 

Debt: Ayala Corp, San Miguel Corporation (SMC), and Aboitiz Equity Ventures (AEV) recorded the largest peso increases at Php 74 billion, Php 70 billion, and Php 62 billion, respectively. LT Group (LTG) showed a substantial reduction of Php 24 billion. 

Interestingly, SMC reported a reduction in total debt—from Q4 2024’s record Php 1.56 TRILLION to Php 1.511 TRILLION in Q1 2025—despite substantial capital and operating requirements. This decline coincided with a surge in income, primarily driven by Php 21 billion in energy asset sales (San Miguel Global Power Holding LNG Batangas facility). Even excluding one-off gains, core profits rose by 31% to Php 19 billion. The company also strengthened its cash position, with cash reserves increasing by Php 57 billion year-on-year. How did this happen? (Figure 7, lower graph) 

Revenue: GT Capital (GTCAP) and Meralco posted the largest revenue increases at Php 15.6 billion and Php 9 billion, while SMC recorded the largest decrease at Php 31.8 billion. 

Net Income: SMC led with a Php 34 billion increase, driven by asset sales, while JG Summit (JGS) reported the largest decline at Php 7.2 billion. 

Cash: ICTSI and SMC posted the largest cash expansions at Php 79.9 billion and Php 57.6billion, while LTG (due to debt repayment) and AEV had the largest reductions at Php 38.2 and 15.015 billion 

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage 

Consider the potential impact on the PSEi 30, the broader PSE, and GDP when: 

-Bond vigilantes demand fiscal prudence, pushing interest rates higher

-Heavily leveraged consumer adopt austerity measures.

-Malinvestments from "build and they will come" industries, such as over saturation in real estate (26% residential condominium and office condominium vacancy rates and 22% per Colliers Philippines), and trade sectors, could lead to rising unemployment. 

These risks, compounded by diminishing stimulus effectiveness, threaten the sustainability of PSEi 30 performance and GDP growth. 

For instance, SMC’s business model has become increasingly reliant on recycling its borrowings or asset sales, making it wholly dependent on the sustainability of cheap money to refinance its rapidly growing debt. Neo-Keynesian economist Hyman Minsky famously characterized this as 'Ponzi finance.' (Minsky,1992) 

In essence, the structural risks are real—and growing more visible in each earnings season. 

IX. Transparency and Accuracy Concerns 

As previously stated: 

"The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms." (Prudent Investor, May 2025) 

These concerns underscore persistent governance challenges—particularly if elite-owned firms are engaged in systematically underreporting liabilities and overstating revenues or profits. Such practices not only contribute to the distortion of market signals but also foster moral hazard, eventually eroding investor confidence and undermining regulatory integrity. 

___ 

References 

Hyman P. Minsky, The Financial Instability Hypothesis* The Jerome Levy Economics Institute of Bard College May 1992 

Prudent Investor, The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts, Substack May 25, 2025

 

 

The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts

 

Besides, stock prices are primarily information... they tell investors where their capital can be most fruitfully employed. The important thing is not that prices be high or low... but that they be honest—Bill Bonner 

In this issue

The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts

I. Monetary Tailwinds and a Fiscal Inflection

II. PSEi 30: Debt as the Primary Growth Driver

III. Record Revenues, Yet Slowing Growth Momentum

IV. Net Income Challenges: Slow Growth and Declining Margins

V. “Cui Bono?” — Who Benefits from GDP Growth? A Symptom of Trickle-Down Economics

VI. Sectoral Performance: Debt, Revenue, and Income Trends

VII Top Movers: Individual Firm Highlights

VIII. Final Notes on Transparency and Accuracy 

The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts 

What the PSEi 30 tells us about the Philippine economy’s fiscal and financial direction in 2024. 

I. Monetary Tailwinds and a Fiscal Inflection 

The Bangko Sentral ng Pilipinas (BSP) initiated the first phase of its easing cycle in the second half of 2024, comprising three policy rate cuts alongside a reduction in the Reserve Requirement Ratio (RRR). 

This coincided with an all-time high in public spending, bolstered by a surge in non-tax revenues. As a result, the Philippine fiscal deficit marginally narrowed to Php 1.506 trillion in 2024—still the fourth largest in history. To fund this gap, public debt rose to a historic high of Php 16.05 trillion. 

Simultaneously, a steep decline in quarterly Consumer Price Index (CPI) readings during Q3 and Q4 pulled average annual inflation down from 6.0% in 2023 to 3.2% in 2024. 

These three macroeconomic developments—monetary easing, record government expenditure, and easing inflation—served as key underpinnings of GDP growth. Despite noticeable slowdowns in Q3 (5.2%) and Q4 (5.3%), relatively stronger performances in Q1 (5.9%) and Q2 (6.5%) lifted full-year GDP growth to 5.7%, edging up from 5.5% in 2023.

Against this backdrop, how did the elite composite members of the PSEi 30 perform in 2024?

This article examines their financial performance, focusing on debt, revenue, net income, and sectoral contributions, while highlighting the broader implications for the Philippine economy. 

Nota Bene:

PSEi 30 data include redundancies due to the inclusion of assets and liabilities of subsidiaries and their parent holding firms.

Chart Labels:

B 1A Recent Data: Consists of current members and includes possible data revisions from the past year.

1B Data: Reflects comparisons between previous years, consisting of members during the existing period and unaudited publications for the period.

II. PSEi 30: Debt as the Primary Growth Driver

Figure 1 

In 2024, non-financial debt surged by 8.44% to a record Php 5.767 trillion, marking the third largest annual increase since 2018. (Figure 1, topmost pane) 

This Php 449 billion net addition occurred despite elevated borrowing costs, with 10-year BVAL rates remaining high. (Figure 1, middle graph) 

Relative to the broader financial system, non-financial debt accounted for 16.92% of total financial resources (bank and financial assets), slightly above the 16.87% share in 2023. (Figure 1, lowest image) 

On top of this, the top three PSEi 30 banks reported a staggering 49.99% increase in bills payable—from Php 483.58 billion in 2023 to Php 725.30 billion in 2024. Notably, this figure excludes bond issuances. 

III. Record Revenues, Yet Slowing Growth Momentum

Figure 2

The PSEi 30 collectively posted record revenues of Php 7.22 trillion, representing a 7.91% increase or Php 529.07 billion in absolute terms. This slightly surpassed the 7.8% growth or Php 478 billion gain in 2023. (Figure 2, upper chart) 

However, in historical context, the 2024 increase ranked as the third smallest since 2018—reflecting the easing of price pressures as the CPI cooled. 

Systemic leverage—defined here as the sum of public debt and universal/commercial bank loans (excluding fixed-income instruments and FDIs)—rose by 11.1% in 2024, reaching an all-time high of Php 29.96 trillion. (Figure 2, lower chart) 

This expansion in credit, alongside continued deficit spending, substantially supported aggregate demand, thereby contributing to the PSEi 30’s revenue gains. 

Figure 3 

However, viewed from another lens, the slowing contribution of money supply relative to GDP—a key indicator of real economy liquidity—has increasingly revealed slack in both PSEi 30 performance and broader GDP growth. (Figure 3, upper image) 

The 2020 spike in this metric underscored the BSP’s historic role in backstopping the banking system during the pandemic. 

Yet it also marked a turning point in the financialization of the Philippine economy—an underlying force behind demand-side inflation and a structural driver of imbalances between financial sector gains and real-sector productivity. 

Importantly, the deceleration in revenue growth mirrored the nominal GDP trends of 2023 and 2024, highlighting the interconnectedness of corporate performance and macroeconomic trends. (Figure 3, lower visual) 

IV. Net Income Challenges: Slow Growth and Declining Margins

Figure 4

Net income across PSEi 30 firms grew at a sluggish 6.8% to a record Php 971 billion. While this represents a nominal gain of Php 80.31 billion, both the growth rate and the absolute increase were the smallest since 2021. (Figure 4, topmost image) 

Despite widespread corporate participation in government projects, historic public spending growth of 11.04% outpaced net income growth, underscoring the accumulating inefficiencies in the effectiveness of 'trickle-down' policies. (Figure 4, middle graph) 

The PSEi 30 maintained a steady net income margin of 13.44%, slightly lower than last year's 13.45% but still exceeding the 5-year average of 12.15% (2019–2024). (Figure 4, lowest chart) 

Critically, the debt-to-net income ratio revealed that Php 0.46 in debt was needed to generate every Php 1 in profit. 

More alarmingly, on a net basis, Php 7.3 in new debt was required for every Php 1 increase in profit—a record high. 

The takeaway: Deepening debt dependency to drive profits is not only artificial but also subject to diminishing returns. 

V. “Cui Bono?” — Who Benefits from GDP Growth? A Symptom of Trickle-Down Economics

Figure 5

Revenue as a share of GDP edged up to 27.3% in 2024 from 27.22% in 2023—marking the third-highest level since 2019. (Figure 5 upper window) 

The PSEi 30 accounted for more than a quarter of nominal GDP, excluding additional contributions from other publicly listed firms under elite conglomerate umbrellas. 

This substantial contribution highlights a hallmark of the government and BSP’s “trickle-down” economic development model, characterized by increased business operations through direct state spending, which disproportionately benefits politically connected corporate giants. 

Importantly, the BSP’s easy-money regime functions as an implicit subsidy, enabling elite firms to acquire cheaper credit as a protective moat against competition. 

The result: a centralization of economic gains among the elite, while MSMEs and average Filipinos—Pedro and Maria—bear the costs. 

In essence, the model privatizes profits while socializing costs, exacerbating economic inequality. 

VI. Sectoral Performance: Debt, Revenue, and Income Trends 

In 2024, sectoral performance varied significantly: (Figure 5, lower table) 

Debt: The industrial sector posted the largest percentage increase in debt at 17.33% year-on-year (YoY), but holding firms dominated in peso terms, accounting for a 67.85% share of total debt. 

Revenues: Despite rising vacancies, the property sector recorded the highest percentage revenue gain at 16.6% YoY. However, holding firms led in absolute peso increases and percentage share, contributing 45.9% of total revenue growth. 

Net Income: The services and property sectors outperformed with net income growth of 20.6% and 17.6%, respectively. Banks, however, led in peso growth and accounted for 45.6% of the net income increase. 

Cash Holdings: Non-financial firms’ cash holdings contracted by 1.91%, driven by a 14.6% and 3.35% decline in reserves in the industrial and service sectors, respectively. 

In contrast, PSEi 30 banks saw their cash holdings rise by 14.6%, despite the BSP reporting otherwise. This discrepancy raises questions over possible dual standards in bank reporting. 

VII Top Movers: Individual Firm Highlights

Figure/Table 6 

Debt: San Miguel Corporation (SMC) led all firms with a Php 155 billion increase in debt, bringing its total to a historic Php 1.560 TRILLION—comprising 35% of all non-financial PSEi 30 debt. Ayala Corporation and its energy subsidiary ACEN followed with Php 76.9 billion and Php 54 billion increases, respectively.

Revenues: San Miguel, BPI, and BDO were the top contributors in terms of revenue increases. Conversely, DMC and its subsidiary Semirara reported revenue contractions. 

Net Income: ICT, BPI, and BDO led net income growth in absolute terms, while SMC and SCC posted the largest declines. 

Cash Holdings: The largest cash increases came from SMC and ICT, while Aboitiz Equity Ventures and LTG Group reported the steepest reductions. 

VIII. Final Notes on Transparency and Accuracy 

The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms. 

Moreover, when authorities overlook or fail to act on instances of misreporting—especially by large, elite-aligned corporations—this raises serious governance concerns. Such inaction fosters moral hazard and risks entrenching a culture of non-transparency within the corporate sector. 

Analyzing the 2023 Performance of the Philippine PSEi 30 Constituent Firms

 

The heart of the matter: an untenable mountain of debt is supported by a deeply maladjusted economic structure. The amount of perceived wealth tied up in speculative asset Bubbles becomes completely divorced from underlying wealth producing capacity within the real economy. The unavoidable bursting of speculative Bubbles unleashes forces that expose deep-seated system Credit, market and economic fragilities, along with policy impotency—Doug Noland

 

In this issue

Analyzing the 2023 Performance of the Philippine PSEi 30 Constituent Firms

I. Introduction

II. PSEi 30’s 2023 Financial Performance: Net Income and Revenues Climb as Debt Accumulation Slowed

III. A Dissection of the PSEi 30 Financial Performance in the Lens of the "Trickle-Down" Political Economy

IV. 2023 Financial Performance by Sector

V. 2023 Financial Performance by Company

VI. PSEi 30’s "Beguilingly " Cheap PER

 

Analyzing the 2023 Performance of the Philippine PSEi 30 Constituent Firms

 

We review and assess both the aggregate and detailed financial performance of the PSEi 30, including their economic contribution or impact.

 

I. Introduction

 

The 30 elite members of the PSEi 30 completed the submission and publication of the 17-A or annual reports only last week. 

 

This outlook examines their financial performance for 2023.

 

Nota bene: 

 

-Older data, representing PSEi members of the specified year-end, presents an apples-to-oranges scenario. The PSEi periodically updates its constituents, which we labeled as 1A data.

-The older data also excludes revisions.

 

-Current or 2022-2023 annual data provides a more accurate comparison as it reflects present members, labeled here as 1B data.

 

-The aggregates are overstated due to holding companies incorporating subsidiaries.

 

Nevertheless, our aim with this assessment is to provide an approximate overview of their 2023 performance.

 

II. PSEi 30’s 2023 Financial Performance: Net Income and Revenues Climb as Debt Accumulation Slowed

First, the good news.

 

For the first time since at least 2018, net income in pesos grew faster than debt.

Figure 1

 

Non-financial debt (1A) declined by 4.6%, from a record Php 5.570 trillion in 2022 to Php 5.316 trillion, marking a Php 254.3 billion decrease. (Figure 1, topmost image)

 

According to 1B data, debt increased by 1.96%, from Php 5.214 trillion to Php 5.316 trillion, or a Php 102.2 billion expansion, its slowest since 2018.

 

These figures are based on published debt.

 

Please note: Some companies may have reclassified or included debt in other accounting identities, such as lease liabilities, which were reflected in interest expenses. Debt from the PSEi 30 banks was not included in this analysis.

 

As a ratio of total financial resources, the debt of the PSEi 30’s non-financials marginally slipped to 17.2%, its lowest level in the last 5 years. (Figure 1, middle pane)

 

Apparently, the BSP’s rate hikes, coupled with the stratospheric levels of debt, may have diminished the appetite for aggressively acquiring debt. (Figure 1, lowest graph)

 

Figure 2

 

Although headline revenues (1A) surged from Php 6.307 trillion to a record high of Php 6.62 trillion, growth rates slowed to 4.95% in percentage terms and Php 312.3 billion in peso terms, respectively. (Figure 2, topmost chart)

 

Based on 1B, revenue growth of 7.8% or Php 477.96 billion accounted for the slowest pace since 2021.

 

Net income performance mirrored revenue trends.

 

Based on 1A, it posted a record Php 890.3 billion in 2023, up 16%—its slowest rate since 2021—or Php 150.8 billion. It was up by 28.4% or Php 146.14 billion in 2022. (Figure 2, middle graph)

 

Using current members (1B), it increased by only Php 122 billion, again its slowest growth in the last three years.

 

That said, using 1A, for every peso increase in debt, net income grew by Php 1.48.

The burning question is: given their dependence, how long can these companies afford to refrain from using borrowing as an engine of growth?

 

III. A Dissection of the PSEi 30 Financial Performance in the Lens of the "Trickle-Down" Political Economy

 

Next, to answer that, let's consider the macro-economic dimension:

 

- According to 1A data, all-time high revenues are indicative of the all-time high in overall system leverage, which includes (Universal-Commercial) bank lending and public debt. (Figure 2, lowest visual)

Figure 3

 

-Revenue growth in pesos also reflects the movements of the Consumer Price Index (CPI), as well as the GDP. (Figure 3, topmost graph)

 

-Record net income, as well as its trend, resonated with the milestone high in public spending and its trend. (Figure 3, middle window) 

 

The thing is, revenue growth in 2023 outperformed NGDP for the past three years but underperformed in 2023. Could this be a sign that GDP was overstated, or did the government replace the private sector as its primary engine? (Figure 3, lowest diagram)

 

The historic debt resulting from combined deficit spending, consumer spending, and the "build and they will come " supply represents the demand and supply dynamics of the economy, as signified by the financial performance of the PSEi 30.

 

Essentially, debt drives the political economy more than vice versa.

 

Many PSEi 30 companies directly benefit from government projects, such as infrastructure, as well as various political, financial, and bureaucratic activities, while others benefit indirectly.

 

Similar to the consumption activities of political spending, the restructuring of the banking system’s loan portfolio targeting consumers, and the "race to build" supply industries like real estate, construction, finance and accommodation were also designed to boost GDP, albeit at the cost of slowing savings and increasing debt loads.

Figure 4

 

For instance, the net claims of depository corporations on the central government, which represent bank liquidity infusions through Treasury holdings, surged to historic levels in 2023, albeit at the cost of diminishing deposit liabilities and cash in circulation, as represented by M2. Deposit liabilities included in M2 are transferable, savings and time deposits. (Figure 4, topmost chart)

 

Additionally, the slowdown in aggregate liquidity to GDP measures, reflecting the deceleration of aggregate bank credit growth and BSP liquidity injections, was also reflected in the financial performance of the PSEi 30. (Figure 4, middle pane)

 

What’s more, aside from the CPI, revenue growth of 7.8% (1B) resonated with the Nominal GDP of 10.6%. 

As a measure of the government’s "trickle-down” policies, PSEi 30 revenues accounted for 27.25% of the NGDP, representing the third-highest rate in the last five years. (Figure 4, lowest image)

 

This reveals the extent of economic concentration that has skewed "rent" benefits to the elites.

 

Moreover, since these firms represent the primary beneficiaries of debt-financed government spending and bank credit expansion, based on the Cantillon Effects, they are the first (direct) or the second-order (indirect) recipients and spenders of the newly issued money. As such, these firms arbitrage from the diffusive effects of the inflation process on the economy, which are manifested through widening profit margins that anchor their net income.

 

In short, BSP policies indirectly subsidize the profits of the PSEi 30 at the expense of SMEs and the average citizenry.

 

However, the rising share of the PSEi 30’s debt load to the Total Financial Resources, as mentioned above, exposes the mounting risks of financial and economic concentration. Without the public being aware, due to the rising scale of leverage, some firms have become "Too Big to Fail." 

 

Despite the BSP and institutional reticence, risks have become systemic.

 

Needless to say, all these factors play a crucial role in shaping the PSEi 30's top and bottom-line performance, including their risk profile.

 

Fundamentally, given the political economy’s dependence on the Keynesian development model of consumption channeled through the savings-investment gap, how can these firms survive without debt as an engine of growth?

 

IV. 2023 Financial Performance by Sector

 

How did the sectors of the PSEi 30 perform in 2023?

 

Figure/Table 5

 

In the context of non-financial debt (1B), the holding sector grew by only 1.6%, yet it posted the largest peso gains of Php 56.7 billion.

 

The two-firm property sector came in second, with growth up by 6.2% or Php 36.5 billion. Industrials saw their debt decrease by 1.6% or Php 4.4 billion.

 

Overall, debt grew by 2% to Php 102.2 billion.

 

Nevertheless, the property and financial sectors took the limelight in terms of headline performance.

 

Financials registered the fastest revenue growth at 44%, while the property sector came in second at 19.2%.

 

However, as a share of the PSEi 30, financials and the property sector represented only 4.2% and 8.2%, respectively, with the holding firm sector commanding the majority share of 57.6%.

 

For the PSEi 30, revenues grew by 20.4%, amounting to Php 150.8 billion.

 

In terms of net income, the property sector also accounted for the speediest growth clip at 31.16%, while financials clocked in at 29.2%. Base effects led to such a substantial growth rate for these industries.

 

Nonetheless, Financials, with 18.9%, had the second-largest share after the 47.24% of holding firms. The property sector accounted for 7.9%.

 

Based on 1B data, PSEi 30 firms drew from cash reserves to pay down debt and for business operations. In terms of percentage, the property (-9.4%) and holding firm (-8.5%) sectors yanked the most cash, while industrials (+10.8%) and banks (+3.3%) increased theirs. The PSEi 30 saw a 2.88% drawdown in cash levels in 2023

 

V. 2023 Financial Performance by Company

 

Here is the 2023 financial performance breakdown by constituent members.

Figure/Table 6

 

To omit the growth perspective due to base effects, we shall focus on changes in peso levels.

 

Only thirteen of the non-financial PSEi 27 firms posted growth in peso debt levels in 2023.

 

The top three firms with the largest gains were San Miguel (Php 49.6 billion), Ayala Corp (Php 37.4 billion), and Aboitiz Equities (Php 23.71 billion). On the other hand, SM posted the largest debt reduction.

 

SMC’s new debt accounted for 51.5% of the aggregate increase.

 

Meanwhile, despite the 2.9% reduction, 16 of the PSEi 30 firms posted increases in cash reserves. The top two firms were Meralco (Php 26.5 billion) and LTG (Php 19.05 billion). On the other hand, the three biggest firms which drained reserves were SMC (Php 56.9 billion) and JGS (Php 41.2 billion).

 

SMC’s debt load steadied in Q4 2024 (compared to Q3 2024), which means that aside from net income, cash reserves, and non-debt instruments like preferred shares were used to fund existing operations and refinance maturing debt.

 

Figure 7

Nonetheless, SMC’s debt hit a staggering PHp 1.405 trillion in 2023, while interest expense surged to All-time highs too!

 

Regarding revenues, 27 of the 30 firms reported annual gains with BDO (Php 71.1 billion), SM Investments (Php 63.3 billion), and GT Capital (Php 61.4 billion) among the top three firms.

 

SMC reported the largest revenue loss with Php 59.9 billion from sales deficits of its subsidiaries, Petron (Php 56.611 billion), and Global Power (Php 51.8 billion).

 

Finally, 20 of the 30 firms posted net income growth in 2023. JGS (Php 26.1 billion), SM (Php 21.84 billion), SMC (Php 17.94 billion), BDO (Php 16.33 billion), and PLDT (Php 16.1 billion) constituted the top 5.

 

VI. PSEi 30’s "Beguilingly " Cheap PER

 

Figure/Table 8

 

On the surface, the aggregate PER ratio looks enticingly cheap. Negative EPS contributed mostly to the sharp decline in the 2023 PER, which stood at 2.35. Excluding SMC and MONDE, which posted negative EPS in 2022, the PER climbs to 13.8.

 

As of May 5th, the average PER of the top 5 largest market cap issues was 16.6, and the next 5, 14.9.

 

In any case, these aren't exactly 'cheap,' in the face of rising debt, elevated inflation, and 'higher for longer' interest rates as productivity and savings slow.

 

Statistics are history. It is also about transparency, which is questionable in the present setting. Yet, equity returns are about the future.

 

Or, in reference to a Wall Street maxim, "Past performance does not guarantee future returns.