Historically, the Philippine Stock Exchange has had a lower price-to-earnings ratio compared to markets in Indonesia, Thailand, and Vietnam.
Philippine stocks are currently trading at their lowest discount to regional counterparts since 2009. It is largely due to the uncertainty caused by US President Donald Trump‘s changing tariff policies, which adds to concerns for the export-oriented economy.
The benchmark Philippine Stock Exchange PSEi Index decreased by around 7% since reaching its peak in May, making it the poorest-performing index in Asia as foreign investors withdraw their funds. The index is trading at 9 times its projected earnings, compared to 16 times seen in the MSCI Asia Pacific Index.
The ongoing valuation gap, which is likely to persist, is creating concerns as tariffs that the US might impose will undoubtedly affect the Philippines’ semiconductor and electronics exports, which account for approximately 60% of its total exports. While the government is attempting to be exempt from US tariffs on certain goods, investor confidence remains low.
Currently, there are constant concerns about tariffs on semiconductors, a significant export for the Philippines, according to Mark Angeles, head of equity research at First Metro Securities Brokerage Corp.
Foreign investors have withdrawn $133 million worth of Philippine stocks this quarter, as they fear the risks of local currency depreciating and a lack of positive market triggers. In terms of the price-to-book ratio, the market is at risk of falling behind Thailand, potentially becoming the most affordable in Southeast Asia.
Recent data show that this discount might be more about mispricing than actual weakness. For long-term investors, the challenge lies in distinguishing between short-term underperformance and lasting value.
Historically, the Philippine Stock Exchange has had a lower price-to-earnings ratio compared to markets in Indonesia, Thailand, and Vietnam. This discount stems from a combination of reasons, including underrecognized earnings quality, risk premiums based on political conditions, and restricted foreign investment.
Macroeconomic resilience is often an overlooked factor in stock valuations. The Philippines, with its young and urbanizing population and a growing services sector, has shown strong flexibility. Its foreign exchange reserves have consistently outperformed those of other countries, helping protect against external shocks.
While there are no public GDP growth figures for 2025, the Philippines has been growing at 5 to 6% a year with inflation staying below 4%. This points to a stable economy, which is rare in the region. Other countries, such as Indonesia and Vietnam, have faced currency fluctuations and inflation. The Philippines’ ability to manage its finances during global uncertainty makes it a safer option for long-term investors.
The gap between valuation measures and economic fundamentals suggests a correction could be coming. In the past, markets that are undervalued but structurally strong, like the Philippines, have done well when global capital shifts. For example, from 2020 to 2022, the PSE beat its rivals by over 15%, even though it started from a lower valuation.
Investors should also acknowledge the influence of demographic and technological advantages. The rise of the middle class in the Philippines, along with its dominance in business. Investors should also consider the impact of demographics and technology. The growing middle class in the Philippines, along with its strong position in business process outsourcing and fintech, is driving more spending and higher productivity.
While these factors may not show up in standard valuation numbers, they are becoming more important for stock performance in today’s digital world. For those investors prepared to look past immediate volatility, the market’s longstanding discount presents a promising opportunity. However, achieving success relies on a sophisticated understanding of both valuation arbitrage and macroeconomic resilience. As global capital trends increasingly favour quality over quantity, the unique combination of undervaluation and structural strength in the Philippines may emerge as one of the defining stories of the decade.
