For decades, the Philippine Stock Exchange Index (PSEi) was largely driven by the country’s biggest conglomerates, banks and property developers.
Companies such as SM Investments, BDO Unibank, Bank of the Philippine Islands, Ayala Corp., Ayala Land and SM Prime traditionally accounted for much of the market’s movement because of their enormous market capitalizations, but this picture is quietly changing.
Today, one company has become so valuable that it is exerting an increasingly significant influence on the direction of the Philippine stock market.
With a market capitalization of approximately ₱1.78 trillion, International Container Terminal Services Inc. (ICTSI) is now by far the largest listed company on the Philippine Stock Exchange. It is worth more than twice SM Investments, nearly three times SM Prime and BPI, and more than eight times Ayala Land.
ICTSI’s remarkable growth has not only rewarded its shareholders. It has also begun changing the structure of the PSEi itself.
A Different Kind of Market
In a recent Philippine Daily Inquirer column entitled “Is PSE Investor Participation Declining?”, financial columnist Henry Ong highlighted an important shift taking place in the Philippine stock market.
Using idiosyncratic returns, Ong showed that fewer stocks are outperforming independently of the broader market. Instead, leadership has narrowed, with only a relatively small group of companies generating much of the market’s positive performance.
Among those companies are ICTSI, Meralco, Monde Nissin, Puregold, JG Summit and ACEN. At the same time, many of the market’s traditional heavyweights have struggled.
Since the start of the year, Ayala Land has fallen almost 32 percent, Converge more than 33 percent, DMCI nearly 28 percent, Jollibee around 27 percent, SM Prime almost 19 percent, BPI 16 percent, San Miguel 16 percent, SM Investments nearly 15 percent, and BDO about 10 percent.
In contrast, ICTSI has surged by more than 56 percent.
The result is that while many traditional blue chips have lost market value, ICTSI has become even more dominant within the index.
Why ICTSI?
ICTSI’s growing influence is supported by exceptional business performance. The company generated approximately ₱209 billion in revenue and nearly ₱66 billion in net income over the past 12 months.
Its 66.6 percent return on equity is one of the highest among major Philippine listed companies, while its 13.9 percent return on assets reflects strong profitability despite its global asset base.
These numbers help explain why investors continue assigning ICTSI a premium valuation despite its already enormous size.
Unlike companies whose market values rise primarily because of speculation, ICTSI’s valuation has largely been supported by consistently strong earnings, expanding global operations and high returns on capital.
Why the PSEi May Be Weaker Than It Looks
Henry Ong expanded this discussion in another Philippine Daily Inquirer column entitled “Why the PSEi May Be Weaker Than It Looks.”
Drawing on academic research on market concentration, Ong argued that an index can appear diversified while becoming increasingly dependent on only a few companies. This appears to be happening in the Philippine market today.
Although the PSEi has declined only modestly this year, much of its resilience has been supported by ICTSI and a handful of other outperforming companies.
Ong illustrated this by showing that if ICTSI had merely traded sideways this year instead of posting its strong gains, the PSEi would have declined by roughly 5 to 6 percent instead of only about 2.4 percent. This observation has become even more significant today.
As ICTSI’s market capitalization has expanded to ₱1.78 trillion, its influence on the market has grown while the influence of many traditional blue-chip leaders has diminished following their share price declines.
In other words, the PSEi has become increasingly dependent on ICTSI’s continued strength.
The Hidden Risk of Success
There is nothing inherently negative about ICTSI’s dominance. On the contrary, its market leadership reflects years of outstanding execution and consistently strong financial performance.
The risk lies not with ICTSI itself, but with the changing structure of the market.
When one company becomes significantly larger than many of its peers, a market-capitalization-weighted index naturally becomes more sensitive to that company’s movements.
This means a meaningful correction in ICTSI could have a much greater impact on the PSEi today than it would have had several years ago.
Even if traditional blue chips such as Ayala Land, SM Prime, BDO and BPI begin recovering, their ability to offset weakness in ICTSI is smaller than before because their combined influence on the index has declined while ICTSI’s has grown.
Ong also explored this possibility by presenting a scenario in which the recent market leaders correct sharply while some of today’s weaker blue chips recover. His analysis suggested that the PSEi could still decline by around 6 percent, bringing the index closer to the 5,500 level despite a rebound in some lagging sectors.
Looking Beyond the Index
Many investors assume that owning the PSEi automatically provides broad diversification. But diversification depends not only on the number of companies in an index. It also depends on how much influence each company has over its performance.
As capital becomes increasingly concentrated in a handful of dominant stocks, the index itself becomes more concentrated. This does not diminish ICTSI’s achievements.
Rather, it changes how investors should interpret the movement of the PSEi.
A relatively stable index may no longer mean the broader market is equally healthy. Instead, it may simply reflect the continued strength of one exceptional company and a handful of other market leaders.
