The Truth About the PSEi: Why It Hasn’t Grown
Introduction
I’ve seen a lot of frustration and disappointment around the stock market price stagnation of the Philippine Stock Exchange Index (PSEi).
And honestly? Those concerns are valid.
If you had invested in an index fund tracking the PSEi from 2015 until today, you’d actually be down in terms of market price. Sure, you’ve received dividend income over the years, but the big question is: Was it enough to offset the losses from the index’s price decline?
This brings up two key questions:
1️⃣ Are the largest public companies in the Philippines actually stagnating? Are they struggling to generate meaningful income for shareholders, and is that why the PSEi is stuck at lower levels?
2️⃣ Or is there something else going on—something that most investors aren’t aware of or simply don’t talk about?
In this blog, let’s dive into these questions and explore the possible reasons behind the PSEi’s underwhelming performance. There might be more than meets the eye.
Let’s get into it. 🚀
The Leading Philippine Stock Market Index
The Philippine Stock Exchange Index (PSEi) represents the 30 largest publicly traded companies in the country. These are some of the biggest businesses shaping the Philippine economy.
As of February 2025, here are the largest companies included in the index:
🔹 BDO Unibank, Inc. (BDO) – One of the country’s top universal banks.
🔹 SM Prime Holdings, Inc. (SMPH) – A major player in property development, best known for its massive shopping malls.
🔹 Bank of the Philippine Islands (BPI) – One of the oldest and most reputable banks in the country.
🔹 International Container Terminal Services, Inc. (ICT) – A Manila-based global port management company.
🔹 Ayala Corporation (AC) – A diversified conglomerate involved in real estate, banking, telecommunications, and more.
🔹 Ayala Land, Inc. (ALI) – A leading real estate developer that builds large-scale communities.
🔹 Globe Telecom, Inc. (GLO) – A major telecommunications provider.
🔹 Metropolitan Bank & Trust Company (MBT) – Commonly known as Metrobank, it offers a full range of banking services.
🔹 Aboitiz Power Corporation (AP) – A key player in the power industry, covering generation, distribution, and retail electricity.
🔹 San Miguel Food and Beverage, Inc. (FB) – A subsidiary of San Miguel Corporation, focused on food and beverage products.
These are real businesses that generate revenue by providing essential products and services. After deducting costs, amortization, interest, and taxes, what remains is their profit1—a key measure of how well a company is performing.
For investors, this profit translates into earnings per share (EPS)2, which theoretically represents the amount of profit you “own” per share of the company. Some companies distribute a portion of these earnings as dividends3, while others reinvest them for future growth.
It now begs the question, are these companies making money? and why has the PSEi barely moved for a decade?
The Market Is an Auction—And Expectations Matter
A lot of Filipinos have lost faith in the stock market because of its weak performance in recent years. But does this mean these companies aren’t making money? Not necessarily.
While earnings drive long-term returns, there’s another big factor at play: investor expectations.
Let’s break it down.
Every year, the PSEi calculates its own earnings per share (EPS) by adding up the EPS of all the companies in the index. This number gives us an idea of how much profit these companies are generating.
Now, if you look at the PSEi price chart at the lower right portion of the above image, you’ll notice something interesting:
✅ The index price hit a high in 2017 but has struggled since then.
✅ Meanwhile, the earnings per share (EPS) kept growing (left lower portion of the above image), despite the dips in 2020–2021 due to the pandemic.
If earnings are rising, why is the PSEi still down?
This is where the Price-to-Earnings (P/E) ratio comes in.
💡 In 2015, investors were willing to pay 22.5 times the earnings of PSEi companies.
💡 In 2024, that dropped to 11.96 times earnings.
This means that even though companies are making more money each year, investors today are willing to pay much less for those earnings compared to 2015.
Why? Market sentiment.4
Stock prices aren’t just about earnings—they reflect what investors think about the future because the stock market is forward looking not backward looking. And those expectations are influenced by things like:
📉 Government policies
📉 Business environment
📉 Laws and regulations
📉 Economic conditions
📉 Global events & geopolitics
If investors lose confidence in the country’s economy or business climate, they demand cheaper stock prices, even if the companies themselves are doing fine.
One of the biggest roadblocks to the Philippine stock market’s growth is corruption. It has long been a barrier into achieving widespread and sustainable economic prosperity.
Now, I’m not an economist, so I can’t say with absolute certainty that corruption is the main reason for the market’s undervaluation. But if we look at other emerging markets, corruption is often a major hurdle that holds back investor confidence and economic progress.
Why This Isn’t Necessarily a Bad Thing
A stagnating stock market can be discouraging, but here’s the good news:
📌 Earnings are still growing. That means shareholder value is increasing, and so are dividends.
📌 The PSEi is undervalued. This is only based on a relative P/E valuation metric.
📌 Long-term investors can benefit. Eventually, global investors will take notice of the opportunities here.
We don’t know how long the market will stay at these levels, but history has shown that quality companies with strong earnings eventually get recognized.
So while prices are low, practical investors know what to do: accumulate quality stocks at bargain prices.
As John Templeton once said:
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
What If..?
Are you wondering what could have been the stock market price of the Philippine Stock Exchange index if investors continued to price the said index at a Price-to-Earnings ratio of 19? (this is the median P/E ratio of the PSEI from 2015-2024). Let me feed your curiosity. 😆
Below is the PSEi price at the end of each year with the market consistently valuing them at a P/E ratio of 19 comparing it to the actual price levels and P/E ratio it traded during that time period.
To Sum It Up
The PSEi’s lack of growth isn’t just purely about the underlying performance of the companies within its index—it’s about how much investors are willing to pay for those companies’ earnings.
Despite steady profit growth, market sentiment has turned cautious, leading to lower valuations.
At its core, the market is an auction, and right now, buyers are hesitant, keeping prices down. But history suggests that sentiment can shift—and when it does, undervalued markets tend to correct.
So instead of mainly asking, “Why isn’t the PSEi growing?”, we should also ask, “What will it take for global investors to regain confidence in the Philippine Public Equity Market?”
The answer to that could shape the next decade of the Philippine stock market.
⚠️ Disclaimer: 15% of my total investment portfolio is allocated to the Philippine stock market. Approximately 14% of my total investment portfolio is allocated to the Philippine stock market. There was a time when my exposure to the local market was 100%, but as I deepened my knowledge and passion for finance and investing, my portfolio evolved as well.
For a detailed breakdown of my equity holdings and net worth allocation, check out my blog post: “My 2024 Year-End Portfolio Performance.”
This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.
- If you want to understand the difference between revenue and profit click on the link for this blog “The Income Statement” ↩︎
- Earnings-per-share is an integral component to compute the Price-to-earnings ratio of a company. I discussed this in detail in the blog “Relative Valuation – The Price-to-Earnings Ratio ‘Part 1′” ↩︎
- To know more about dividends, click on the link for this blog “What are Dividends?” ↩︎
- I touched on the topic of market sentiments in the ‘The Markets’ section of the blog “The Power of Cost Averaging Investment Strategy” ↩︎
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