PSE Index plunges 4%, enters bear market

January 31, 2025
7:07PM PHT

In the Year of the Snake, stock market investors get a piercing bite from the bear. 

The Philippine benchmark index plunged into bear market territory on Friday, crashing over 4 percent, or about 245 points, to 5,862.59.

The PSEi has lost 22.9 percent from its last high, officially meeting the definition of a bear market, which is marked by a decline of at least 20 percent from a recent peak.

The drop on Friday means the PSE Index, which includes the country’s biggest and most actively traded companies, has lost about 10 percent of its value this year.

This is also the PSEi’s lowest level in 27 months (Oct. 12, 2022).

Juan Paolo Colet 
China Bank Capital managing director

Why?

“The market crashed into bear territory in the face of disappointing [gross domestic product] results, a major index rebalancing, and Trump 2.0’s looming threat of massive tariffs on Canada, Mexico, and China,” said Juan Paolo Colet, managing director at China Bank Capital.

“Much of the decline today could be attributed to the index rebalancing, as all index names had to be downweighted to make room for the inclusion of AREIT and CBC [Chinabank],” said Alfred Benjamin R. Garcia, research head at AP Securities.

“These two have much larger free float-weighted market caps than the stocks that are to be removed – NIKL [Nickel Asia] and WLCON [Wilcon Depot] – hence the big adjustment to the weights of the other index stocks,” he said.

Alfred Benjamin Garcia
AP Securities research head 

PSEi rebalancing

During rebalancing, the Philippine Stock Exchange adds or removes stocks from the PSEi based on market size and liquidity.

This also prompts fund managers and investors that track the index to sell outgoing stocks and buy new ones, which often triggers high trading volumes and sudden price swings.

Chinabank, owned by the Sy family’s SM Group, surged 38.9 percent to P93 each on value turnover of P5.6 billion. Ayala Land’s AREIT also jumped 7.7 percent to P42 per share.

At the same time, Nickel Asia plummeted 17.8 percent to P2.17 each, while Wilcon lost 1.64 percent to P8.40 per share.

The index changes take effect on Feb. 3, 2025.

Wendy B. Estacio-Cruz
Unicapital Securities head of research

Forecaster calls for rate cuts to support slowing economy

“The Trump 2.0 tariffs are starting to get real. Also, US interest rates remain high and that’s pulling away funds from emerging markets like the Philippines, which is still experiencing sticky inflation,” said veteran forecaster and senior adviser at Reyes Tacandong & Co., Jonathan Ravelas.

“The only saving grace is the tailwinds from election spending this year,” he said.

The slowing economy is also boosting chances for the Bangko Sentral ng Pilipinas to step in and cut rates.

Ravelas reiterated his call for a 50-basis-point reduction in the benchmark rate.

Jonathan Ravelas
Reyes Tacandong & Co. senior advisor

Other large caps under pressure

“We also saw pressure on the majority of the index names as we think some investors shifted to newly added names, CBC and AREIT,” said Wendy B. Estacio-Cruz, Unicapital Securities head of research.

“We expect the index to remain prone to profit-taking but supported by bargain hunting. For next week, the index is expected to range between 5,800 and 6,000,” she added.

Index heavyweights such as Ayala Land Inc. (-8.98 percent), SM Investments Corp. (-1.89 percent), and International Container Terminal Services (-0.28 percent) slumped on Friday.

Beware of downside risk 

Rather than trying to time the market to catch the bottom, investors might consider the PSEi as it approaches Ravelas’s buy area at the 5,800 level.

“This is like a three-day sale for dividend-paying stocks. Is the market still vulnerable to a sell-off? The answer is yes. But for those who are not yet invested, this is already a bargain,” he said.

Whats' next? 

Garcia said the drop was an “extraordinary” event due to the movement of funds ahead of the index changes next week.

“Because the drop was due to index rebalancing, I’m optimistic that we should bounce back next week,” he said.

Colet is also betting on a relief bounce in the coming days.

“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,” he said.

About the author
Miguel R. Camus
Miguel R. Camus

Miguel R. Camus has been a reporter covering various domestic business topics since 2009.

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