La traduction en français est en cours et sera publiée sous peu.
My recent visit to the Philippines was timely as the country, after being an investor’s darling for the past decade, has recently been one of the worst performing equity markets globally. Valuations have reached their lowest levels since the global financial crisis (GFC), and liquidity has dried up.
Key Points
Near-term headwinds: energy inflation driven by the war in Iran, a major corruption scandal, and political uncertainty ahead of the election in 2028 have weakened investor confidence and contributed to the Philippines’ stock market underperformance of late.
Untapped mineral wealth: the country ranks 5th globally in mineral reserves but fails to rank in the world's top 20 exporters. This reflects poor political conditions and institutional weaknesses rather than resource constraints, suggesting significant untapped potential for future development.
Demographic opportunity: with 117 million people and an average age of 26.8 years, the Philippines has one of the world's youngest populations. This, combined with low financial penetration (13.6% consumer debt-to-GDP), is creating substantial long-term growth potential.
Institutional and political constraints: large conglomerates can be risk averse and lack innovation. Weak institutions, such as the central bank, credit bureau and stock exchange, and frequent political leadership changes are preventing reforms and economic development.
An investment paradox: we see current market weakness as a buying opportunity, however distinguishing between innovative companies, such as first-generation entrepreneurs, versus legacy players unable to adapt to a changing world is key.
When I arrived in Manila, the usual 45-minute drive from the airport took only 15 minutes. Indeed, road traffic has dropped by 20% as prices at the pump have almost doubled since the beginning of the war in Iran. “This is actually a good thing” the CFO of the largest conglomerate in the country told me. “In the Philippines, we are used to external shocks such as food and energy inflation. The impact tends to be short-lived as the young and dynamic population adapts easily and domestic consumption tends to resume quickly. We don’t rely on subsidies, and we adapt rapidly to new situations. After Covid, we were the quickest country to recover as domestic consumption drove a rapid rebound in growth.”
It is true that over the last 15 years the country has grown rapidly. Increasing remittances from Filipinos working abroad in the service sector and sending money back home, and the rise of business process outsourcing (BPO), which employed over 1.8 million people1, have been key growth drivers. This inflow of money has fuelled a consumption boom.
However, since last year, the Philippines has faced a number of headwinds. It began with one of the largest corruption scandals to ever hit the country. Contacts we spoke to mentioned up to USD10 billion stolen from infrastructure projects and going into the pockets of senior politicians. The scale was so immense that when the scandal was revealed, the high-end property sector came to a halt, highlighting the size of the fraud. No wonder that confidence has plummeted, unrest has risen and the political environment is uncertain, ahead of the 2028 presidential elections.
Furthermore, the BPO sector, which was responsible for 8% of the nation’s GDP1, has been singled out as one of the biggest potential losers from AI’s broadening usage. So far there hasn’t been any evidence of a reduction in employment, but a potential fall would have a significant impact on the Filipino economy.
Filipinos enjoy shopping the night away.
The final nail in the coffin has been the war in Iran, given the Philippines is highly dependent on energy imports from the Middle East. Inflation had already risen to 7.2% by the end of April 2026, up from 4.1% at the end of March of this year, with transport inflation adding 21.4% year-on-year. Given the government’s preferred approach of adjusting demand to the new environment rather than cushioning the impact of the higher oil price, the central bank has had to raise interest rates in the short term. Rates were hiked to 4.5% at its March meeting, with more increases expected in the coming months. The move, although expected to be temporary, has triggered worsening sentiment in the country with the property sector (most notably residential), which was oversupplied, hit the hardest.
Unsurprisingly in this challenging environment, the stock market has struggled. With limited positive exposure to the AI theme, the Philippines has been one of the worst performing equity markets globally over the past year. This backdrop has exacerbated the low liquidity levels of the local equity market, now 40% lower than before Covid, making the market non investable for many global emerging markets fund managers. As a result, the stock market was trading at a 40% discount to its long-term average and very close to GFC levels, as at 11th April 2026.
Despite attractive long-term economic growth, one aspect of the Philippines we discussed over and over during my trip is how conservative businesses are.
The country is very underpenetrated in terms of financials services, for instance, with one of the lowest consumer debt-to-GDP levels in the world, at 13.6% compared to a global average of 57%2. Similarly, 40% of the retail sector is still informal3, despite large local groups having a strong presence in the country.
The Philippines’ vibrant cities offer a charismatic blend of culture, history, and innovation.
The Philippines is blessed with large reserves of commodities such as gold, nickel and copper, yet it is not even in the world’s top 20 largest exporters, despite being the 5th largest in terms of reserves4. Only 3% of mineral potential land has been explored5. So why is this? Interestingly when talking to the heads of two of the largest conglomerates in the country and pressed on why the Philippines seems to be so underdeveloped, they blame the political environment – the frequent change of leadership with no clear direction and the fact that often populists public figures are elected on a particular theme, such as crime, rather than a serious prospect of reforms that are notably pro-business. They also blame the different institutions, such as the central bank, the credit bureau and the stock exchange, for sub-par growth in the financial sector.
Talking to country specialists we heard a completely different point of view, where the conglomerates were actually made responsible for the lack of change. The belief is that as most of them are now in the second or third generation, they lack risk appetite. They don’t “want to rock the boat”. Why would they do so as they are rich already and simply need to maintain leadership in their respective areas of activity. First-generation entrepreneurs seem to be more active, for instance, in the logistics sector.
As usual the truth is somewhere in the middle and both groups are right: the combination of need for reforms and the lack of innovation is keeping the Philippines from reaching its full potential.
As dire as the direction seems to be in the country, we see the current sell-off as an opportunity to add to our exposure, as the stock market seems oversold.
However, being long investors, our trip has also exposed the complacency of the large conglomerates, and we would expect significant disruption in several sectors in the medium term, most notably finance and retail. Opportunities will be created to invest in innovative companies, however it will be also important to identify losers unable to adapt quickly enough.
Finally, we will need to see increased appetite for equities and structural changes to incentivise retail and institutional investment in the local market, which is tiny in relation to the size of the country.
With 117 million people, the Philippines is the 12th largest country in the world, and has one of the youngest populations with an average age of 26.8 years6. The country faces many challenges ahead but this young vibrant population will create opportunities in the coming decades.