Are Stocks Overvalued? A Filipino Perspective on Market Bubbles

When a market trades at a single-digit price-to-earnings ratio, the usual instinct is to call it cheap. The Philippine Stock Exchange index (PSEi) recently carried a composite P/E of 8.2x, a level that in many contexts signals a buying opportunity. But the PSEi has also been one of the world’s worst-performing markets, shedding roughly 18 percent of its value since early November 2025 and closing at a three-year low of 5,759.37. A low P/E alone does not distinguish between a genuine bargain and a value trap — and that distinction is everything for a Filipino investor deciding where to put money right now.

The question of whether stocks are overvalued depends entirely on what you compare them against. Against historical P/E averages, the PSEi looks cheap. Against the underlying economy’s growth trajectory — GDP slowed to 4 percent in the third quarter of 2025 amid corruption scandals and weak government spending — that low multiple starts to look like a fair price for deteriorating fundamentals. This is the core tension that makes the current market so difficult to read.

What a Low P/E Actually Means in This Market

The OECD’s Capital Market Review of the Philippines 2024 reframes the entire overvaluation debate. The report argues that the Philippine market’s problem is not that stocks are too expensive, but that there are too few of them. At the start of 2024, total market capitalization stood at $234 billion, or 52 percent of GDP — second-to-last among peer countries. From 2000 to 2023, only 95 companies raised capital through IPOs, collectively raising nearly $13 billion. Compare that to Vietnam, where 584 companies raised $36 billion over the same period. A market with a thin supply of listings can appear overvalued simply because investors have few alternatives, pushing prices on existing stocks higher than fundamentals justify.

Why the PSEi Looks Cheap but Feels Expensive

A P/E of 8.2x is low by any standard. But the PSEi’s decline is not a random dip — it follows a specific catalyst. The November 2025 IPO of Maynilad Water Services Incorporated (MYNLD) opened and closed at P15, down 0.13 percent, with over 100 million shares traded and P1.51 billion in turnover. That single event coincided with the index hitting a three-year low. Foreign investors have been net sellers, and GDP growth has slowed to 4 percent. When earnings are falling, a low P/E can simply mean the market is correctly pricing in further deterioration.

The corruption dimension adds another layer. Flood control scandals have eroded investor confidence, and the government’s own spending has been weak. The peso’s weakness against the US dollar compounds the problem for foreign investors, who face currency losses on top of equity losses. Some sectors show resilience — mining, supported by a lifted moratorium and tax exemptions for offshore equipment, and the “Build Better More” infrastructure program — but these pockets of strength have not been enough to reverse the broader trend.

Complications That Change the Picture

The Supply Problem Is Structural, Not Cyclical

The OECD’s diagnosis matters because it shifts blame away from demand. The Philippines has the lowest number of listed companies among peer countries, and the report identifies 411 large unlisted companies that are suitable for listing — many of which outperform current listed ones in size and profitability. Until those companies list, the market will remain thin, volatile, and prone to mispricing. One proposed fix: exempt all listed companies from BIR audits, which could be done via a Department Order from the Secretary of Finance without new legislation. The logic is that removing the incentive to understate income for tax purposes would let companies focus on profitability, making listings more attractive.

State-Owned Enterprises Could Reshape the Market

The Philippines has zero SOEs listed on the PSE. In Singapore, the top three listed SOEs account for 27 percent of total market capitalization; in Malaysia, Indonesia, Thailand, and Vietnam, the figure ranges from 15 to 18 percent. At the start of 2023, there were 118 GOCCs with total assets of P11.6 trillion. Land Bank (P3.1 trillion) and Development Bank of the Philippines (P1 trillion) are the two largest candidates. The OECD recommends transferring SOE shares from the Department of Finance to the Maharlika Fund before listing, which would provide seasoned stocks whose value can be realized immediately. Listing SOEs would also subject them to scrutiny by securities analysts — a check on managerial competence that the government currently lacks as sole shareholder.

Bubbles Beyond the Stock Market

The concept of overvaluation extends beyond equities. Social media has been flooded with displays of luxury cars, designer clothes, and lavish vacations by children of politicians and contractors tied to anomalous DPWH contracts. The Bureau of Internal Revenue has announced audits of ostentatious contractors, and President Marcos Jr. ordered lifestyle checks alongside the DPWH probe into ghost projects. These are not stock market bubbles, but they reflect the same dynamic: value detached from fundamentals. As one commentary put it, some overvalued “stocks” deactivated their social media accounts — similar to delisted equities vanishing after a bubble pops.

What Filipino Investors Can Do Right Now

Distinguish Between Price and Value

Before buying any stock trading at a low P/E, ask whether the company’s earnings are likely to recover or deteriorate further. The PSEi’s decline is tied to real economic headwinds — slowing GDP, corruption scandals, currency weakness — not just market sentiment. A stock that looks cheap today may look fairly priced or even expensive six months from now if earnings drop. Focus on companies with pricing power, strong balance sheets, and exposure to resilient sectors like mining and infrastructure.

Watch for Structural Reforms, Not Just Price Movements

The OECD’s proposals — BIR audit exemption for listed companies, SOE listings via the Maharlika Fund — are not guaranteed to happen, but they represent the kind of supply-side reform that could fundamentally change the market’s trajectory. If implemented, they would increase the number of quality listings, improve corporate governance, and potentially attract foreign capital back. Investors should monitor these policy developments more closely than daily index movements.

Look Beyond Equities Entirely

If the stock market feels like a value trap, other asset classes may offer better risk-adjusted returns. Real estate, coffee farm investments, and even early retirement planning for OFWs are alternatives that don’t depend on the PSEi’s recovery. The point is not to abandon stocks entirely, but to avoid the trap of assuming a low P/E automatically means a bargain. As Warren Buffett’s approach suggests, intrinsic worth matters more than market price — and that applies to where you invest your admiration as much as your money.

Frequently Asked Questions

The Philippine stock market is not obviously overvalued — it is arguably undervalued by traditional metrics. But that does not make it a safe buy. A market can be cheap for good reasons, and the reasons behind the PSEi’s decline are fundamental, not emotional. The most useful question for a Filipino investor is not “are stocks overvalued?” but “what would have to change for this market to be worth owning?” Watch for supply-side reforms, SOE listings, and a recovery in government spending and investor confidence. Until those pieces fall into place, caution is not pessimism — it is simply paying attention to what the price is telling you.

If this was useful, you might also want to read the biggest investing mistakes Filipino investors make and how to avoid them.

Sources

Beyond interest rates: what’s really driving the Philippine stock market — A deeper look at the forces moving the PSEi beyond surface-level metrics.

Top 5 investment options for a secure retirement in the Philippines — Alternative asset classes for Filipino investors looking beyond equities.

Analysis: Value trap — Why the PSE is one of world’s worst-performing markets. Rappler, November 2025.

Reviving the Philippine stock market: the OECD report. BusinessWorld, February 2025.

Blue chips and bubbles: on where Filipinos invest their admiration. SunStar Cebu, 2025.