Philippine Markets Newsletter

PH MONDAY MACRO: Does a commodities heavyweight joining the PSEi mean better chances of earnings by investing in the index?

September 19, 2022

At least twice a year, the Philippine Stock Exchange revisits the composition of its PSE Composite Index (PSEi) to see whether or not constituent stocks continue to meet the requirements. So far in 2022, we’ve had two rebalancing: one in February and another in August.

Let’s take a look at whether or not investing in the index continues to mean investing in some of the Philippines’ high-quality companies or if the market thinks otherwise.

Philippine Markets Newsletter:
The Monday Macro Report
Powered by Valens Research

When we talk about high-quality companies, we look at their profitability from a Uniform Accounting perspective. Do we see improving return on assets (ROA)? Are the ROAs above the cost of capital? Are the ROAs expected to improve?

If the answer to those three questions is mostly yes, then it’s a company we’d be interested to give a second look at.

However, not all high-quality companies are good stocks to buy. The company could have one of the best returns and yet its stock could still underperform the market. One reason for this is the market may already be pricing in any growth potential, resulting in no catalyst to push the price up.

Conversely, good stocks don’t necessarily mean high-quality companies. Many reasons cause stock prices to rise, such as earnings beats, acquisition talks, and even just news about the company bagging a contract but without any actual earnings to back it up yet.

So, when the PSE rebalances the PSEi, which is thought to be representative of the overall Philippine stock market, it is important to check whether or not the index includes high-quality companies, not just those that fulfill the free float level, liquidity, and capitalization criteria.

In the latest PSEi rebalancing in August 2022, Semirara Mining and Power Corporation (SCC) rejoins the index after it was removed two years before. The stock is up nearly 40% since the Russia-Ukraine conflict caused energy and commodity prices to shoot up. This resulted in record-high selling prices for Semirara’s coal segment.

As we see, SCC bounced back nicely from 2020 lows and is expected to see profitability improve further in 2022, as analysts are pricing in exponential earnings growth.

So how does Semirara’s stellar performance contribute to the aggregate Uniform ROA of the index?

Below, we show the Uniform ROA performance of the non-financial companies currently included in the index prior to 2022 rebalancing, on the February 2022 rebalancing, and on the August 2022 rebalancing.

Save for FY 2020, we generally see improved profitability for recent years with Semirara in the index. Thanks to industry tailwinds, the aggregate profitability for index companies is expected to improve in 2022. This should be a good enough signal for investors betting on the Philippine stock market to continue investing in the index.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Newsletter
Powered by Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683