The Philippine Stock Exchange index (PSEi) crashed into bear market territory on Friday, plummeting 4.01% to close at 5,862.59 points. This sharp decline marks a 22.9% drop from its recent peak in October 2024, officially signaling a bear market as defined by a 20% fall from recent highs.
Economic Headwinds and Index Rebalancing
The dramatic sell-off was triggered by a combination of factors, including disappointing GDP growth figures and an impending index rebalancing. The Philippines reported a 5.6% GDP growth for 2024, falling short of the government’s 6-6.5% target and raising concerns about the country’s economic trajectory.
Juan Paolo Colet, managing director at China Bank Capital, explained, “The market crashed into bear territory in the face of disappointing GDP results, a major index rebalancing, and Trump’s looming threat of massive tariffs on Canada, Mexico, and China.”
Index Recomposition Impact
A significant contributor to the market volatility was the upcoming PSEi recomposition. China Banking Corp. and AREIT Inc. are set to join the 30-member index, replacing Nickel Asia Corp. and Wilcon Depot Inc. This change prompted substantial portfolio adjustments among fund managers and investors.
Alfred Benjamin Garcia, research head at AP Securities, noted, “Much of the decline could be attributed to the index rebalancing, as all index names had to be down-weighted to make room for the inclusion of AREIT and CBC.”
Global Factors Amplifying Local Concerns
International developments also played a role in dampening investor sentiment. U.S. President Donald Trump’s recent threats to impose higher tariffs on imports from China, Canada, and Mexico have raised concerns about potential global trade disruptions.
Moreover, less dovish signals from the U.S. Federal Reserve regarding interest rate cuts have contributed to the cautious market atmosphere, potentially affecting capital flows to emerging markets like the Philippines.
Sector Performance and Trading Activity
The market decline was broad-based, with the mining and oil sector leading the losses, plunging 6.57%. The industrial and property sectors also saw significant drops of 5.4% and 3.74%, respectively. The financial sector was the sole gainer, rising 1.05%.
Trading volume surged to 1.76 billion shares worth P21.61 billion, indicating heightened market activity. Foreign investors were net buyers, with net inflows of P594.22 million, despite the overall market downturn.
Expert Outlook and Future Prospects
While the current market situation appears grim, some analysts see potential for a near-term rebound. Colet suggested, “We are dangerously close to the market’s critical support at 5,700, but barring any negative surprises this weekend, we may see a relief rally by next week.”
However, Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., expressed a more cautious view. “I don’t see any compelling fundamentals to support a recovery,” he stated, forecasting that the local stock market could potentially lose up to 30% from its September peak.
Implications for Investors and the Economy
The bear market presents both challenges and opportunities for investors. While the downturn may cause short-term pain, it also creates potential buying opportunities for long-term investors.
For the broader economy, the stock market’s performance reflects growing concerns about economic growth, inflation, and global trade tensions. The government and central bank may need to consider policy measures to boost investor confidence and support economic recovery.
As the Philippine stock market navigates these turbulent waters, investors and policymakers alike will be closely monitoring economic indicators, global developments, and corporate earnings reports for signs of stabilization or further volatility in the coming weeks.
