Why Confidence, Not Just Rate Cuts, Will Decide the PSE’s Future
At the start of 2026, the Philippine stock market appears to be stabilizing.
The benchmark index has posted modest gains, helped by easing inflation and expectations of monetary policy easing.
Yet beneath the surface, investor confidence remains fragile.
According to the leadership of the Philippine Stock Exchange(PSE), the market’s recovery depends on something far more fundamental than interest rates or earnings growth: justice.
Markets Are Driven by Sentiment, Not Spreadsheets
Speaking to the press in early January, Ramon S. Monzon, President and CEO of the PSE, delivered a blunt assessment:
“If nobody goes to jail, nothing will change.”
It was not a political statement. It was a market reality.
In emerging markets, capital flows are shaped less by quarterly results and more by trust:
- Trust in institutions
- Trust in the rule of law
- Trust that accountability applies to everyone
Without this foundation, long-term investment struggles to take hold.
https://tribune.net.ph/2026/01/10/markets-need-justice-to-recover-pse-chief
The Flood Control Scandal That Shook the Market
The Philippine equity market’s weakness in late 2025 was not driven by global risk-off sentiment alone.
It was closely tied to a massive corruption scandal involving flood control projects.
Key developments included:
- Allegations involving budget insertions estimated at up to PHP 100 billion
- Public accusations from a former lawmaker
- Claims that reached the highest levels of government under Ferdinand Marcos Jr.
As uncertainty grew, the PSE index fell to pandemic-era levels, erasing years of gains.
The issue was not merely corruption itself—markets have priced in corruption before.
The real damage came from uncertainty over accountability.
Why Lower Interest Rates Are Not Enough
Macroeconomic conditions have begun to improve:
- Inflation has eased
- The Bangko Sentral ng Pilipinas has signaled potential rate cuts
- Bargain hunting has returned in early trading sessions
Yet foreign investor participation remains subdued.
The reason is simple:
Long-term capital does not enter markets where rules may not be enforced.
Investors are asking not “Is growth accelerating?”
But “What happens when powerful interests are implicated?”
A Market That Is Bruised, Not Broken
Despite these challenges, the Philippine market is far from dysfunctional.
In 2025:
- Capital raised through equity offerings surged significantly year-on-year
- IPO activity resumed
- Infrastructure and consumer-related listings attracted demand
This suggests the underlying economy remains viable.
The constraint is not growth potential—but governance credibility.
Not Undervalued — Unresolved
Labeling Philippine equities as “cheap” misses the point.
Current valuations reflect a confidence discount, not a fundamental collapse.
If the government delivers:
- Credible investigations
- Transparent judicial outcomes
- Clear precedents of accountability
the re-rating potential could be substantial.
Markets recover quickly when uncertainty is resolved—either positively or negatively. What they cannot price efficiently is ambiguity.
How Investors Should Position
From an investor’s perspective, this is a market that demands patience and discipline.
A prudent approach includes:
- Caution toward short-term index rallies
- Selective exposure to defensive and export-oriented sectors
- Maintaining long-term scenarios contingent on governance outcomes
Markets can fall on fear.
They recover on trust.
Until confidence in institutions is restored, Philippine equities will remain a story of potential deferred, not denied.