PSE Composite Index (PSEi)

The PSE Composite Index (also known as the PSEi) is the main stock market index of the Philippines. Think of it as the Filipino equivalent of the S&P 500 in the United States or the FTSE 100 in the UK. It tracks the performance of 30 of the largest, most actively traded, and most financially sound companies listed on the Philippine Stock Exchange (PSE). By monitoring the rise and fall of the PSEi, investors get a quick, real-time snapshot of the overall health and sentiment of the Philippine stock market and, by extension, its economy. The index is a free-float capitalization-weighted index, meaning companies with a larger market capitalization (total value of all their shares available to the public) have a bigger impact on the index's movement. It's the headline number you'll see on the news when they talk about how the Philippine market performed on any given day.

Imagine you have a basket of 30 different fruits, each representing a top Filipino company. The PSEi is like the total weight of that basket. However, it's a special kind of basket where the heavier fruits (companies with a higher market value) contribute more to the total weight than the lighter ones.

Not just any company can get into the PSEi. To be included, a company must meet a strict set of criteria, which are reviewed twice a year. This ensures the index remains a relevant and accurate reflection of the market's leaders. The main requirements are:

• Free-Float: At least 20% of the company’s shares must be available for public trading. This excludes shares held by insiders, governments, or other major controlling parties.
• Liquidity: The company's stock must be actively traded, meaning it's easy for investors to buy and sell. The PSE measures this by looking at trading volume and frequency.
• Market Capitalization: The company must be among the largest on the exchange in terms of its total market value.

This rigorous selection process means the PSEi is composed of the country’s most significant and influential blue-chip companies, spanning various sectors like banking, property, telecommunications, and energy.

For a value investing practitioner, a market index like the PSEi is not an instruction manual, but a very useful map. It provides valuable context and can point you toward potential opportunities.

The PSEi acts as a proxy for the Philippine economy, which is a key emerging market. A rising PSEi often signals economic growth, corporate profitability, and positive investor confidence. A falling index can signal the opposite. For an international investor, keeping an eye on the PSEi provides a high-level view of the economic climate in the region before diving deeper into individual company analysis.

The real value of the PSEi for an investor is not in the index itself, but in the 30 companies that comprise it. These are often established businesses with strong competitive positions. When the entire market gets dragged down by fear or negative market sentiment, the PSEi will fall. This can be an excellent opportunity for the diligent investor to “go shopping.” During such times, fantastic, durable businesses listed on the PSEi can be bought at a significant discount to their intrinsic value. The index gives you a pre-screened list of major players to start your research.

Remember, an index is simply a collection of stocks, and its value is determined by the collective mood of the market, which can be irrational. Never invest based on the index's movement alone. The key is to use the PSEi as a starting point. Look at its components, analyze their financial statements, understand their business models, and then decide if an individual company is a worthwhile investment at its current price, regardless of what the overall index is doing.