I AM constantly asked what we can do about the poor performance of the Philippine Stock Exchange (PSE), and my first answer is that the stock exchange is an imperfect reflection of the economy. So, if our economy is imbalanced and weighted toward unfavored sectors or absent in popular ones, the stock market will reflect that. What were the most favored sectors globally in 2025 for stock market performance? Tech (especially artificial intelligence [AI] and AI-related; that is why Google was the best performer of the “magnificent seven” tech stocks in 2025, as Google AI seems to be favored by more than offerings of the others) and manufacturing. The Philippines has neither, except in food and cement industries. Utilities and infrastructure are considered safe when well-run but boring. Once built and decently run (which is more that we can say for some politically connected renewable power and other utilities and cooperatives), they offer predictable returns and reliable but modest growth rates. The main opportunity behind them is dividend yield not capital appreciation, and major infrastructure investors look at them as stable vehicles that can add high levels of debt when interest rates are modest and liquidity ample to get a better return on equity. Not areas for exponential gains.
What does the Philippine economy and stock market offer if we don’t have the two hottest global sectors and our choices in the stock exchange are relatively boring and with less liquidity? Contrast that with an exchange with a burgeoning manufacturing sector (Vietnam) or world leaders in technology (South Korea and Taiwan). Add our decades-long underperformance in gross domestic product growth per capita. That is critical as it means a constant decline in our percentage share of regional economies and stock market capitalization is then compounded by a further reduction in our market weighting in regional indices like the MSCI Asia ex-Japan index which is what global fund managers base their capital allocation for various countries. As I previously wrote for the MSCI Asia ex-Japan index, the Philippines market weight is 0.5 of 1 percent so a real rounding error. In the 1990s, it was close to 10 percent if I recall correctly.
Then add our population growth coupled with stunting, poor education, food insecurity and abysmal employment prospects for our fictitious demographic dividend. Add the passe and in my view brain-dead economists pushing the Washington Consensus alchemy that the solution to our food shortage and high costs is import, import, import! Not because it is a good solution but the good ones are too hard. Such world-class thinking and execution from them. They are the opposite of the Kennedy quote on doing things because they are hard and important. In their failed view, we do this not because it is easy but because we find the solution is too hard.
Now, these macro issues which are beyond the stock exchange does not mean there aren’t moves we can make to improve its performance. I just want to be clear about context. They are not easy, short term or magical solutions. They require serious study and analysis, learning (not aping or copying) from others and finding our own solutions or adaptations as well. Plus, consult experts rather than consider yourself a self-proclaimed one. Look as well at how poorly some of our legislation, even those of a technical nature, are prepared and passed. Did they have commissions of experts to study the issue and prepare recommendations and proposals to consider as other countries do? Or just copy and paste, and bahala na and konting oido lang from those who may know something about it or at least think they do, but are not experts.
What are some of the lessons and results from elsewhere? I suggest we look into them as part of a comprehensive expert view, like what we had from EdCom 2. That was a rare sign of an expert and apolitical study that was needed.
Three issues are poor liquidity among listed stocks outside of the highest market cap ones, a very low level of local participation in the stock trading and very limited types of instruments (i.e., common and preferred stocks). 1 and 2 are related. All the data quoted are from Google AI. For total market cap of the PSE, Ho Chi Minh Stock Exchange and Stock Exchange of Thailand they are not too far apart at about $310 billion, $350 billion and 568 billion, respectively. The problem starts with liquidity represented by daily trading volume. The PSE is about $100-$120 million a day with about 55 percent to 60 percent local (foreign used to be higher, they have been mostly net sellers in the last few years), so local trading is about $55-$65 million a day. SET or Thailand has about 50-percent local trading but the average daily volume is $1 to $1.3 billion, so local buying daily is about $500 million to $650 million. HoSE (Vietnam) has average daily trading of $473 to $879 million per day of which about 90 percent (!) is local. Imagine how that will change when they are upgraded from frontier to emerging. Financial Times Stock Exchange (FTSE) estimates with its upgrade over the next year over $6 billion net buying along just from the passive funds that follow FTSE Russell. Our percentage of local trading may be at par with Thailand but the total is literally one-tenth of Thailand and Vietnam’s average local trading volume. Aray!
Then instruments. Apart from common and preferred stocks, we don’t have ETFs (exchange traded funds), options and commodities. One might say there are some thinly traded closed end funds, but we need listing and robust trading of open-end funds and options. Why do I hold many of the New York Stock Exchange (NYSE) and Nasdaq stocks for a long time? I can hedge them and enhance returns with puts and calls. Also, much of what I own there are now ETFs, which I can also hedge. Great way to diversify and manage risk.
As I previously suggested, we should consider adapting some of the NYSE’s system of having market makers (called specialists) for each stock. That ensures there is always a bid and ask. One might like the spread and volume offered to buy or sell but there is always a quote and bid. Then how liquid and so on becomes less critical as there is always liquidity to some level.
Last, and most important, is to use these and more to encourage and more important earn more local trading which is the root cause of our issues. This will not be solved in the short term but the fundamental and comprehensive journey must start and be maintained. Fundamental change yet again, must come from within. Not a deus ex machina from outside.
The author is an independent director of the state-run Maharlika Investment Corp.
