The bull case for 2026: Governance as the foundation of growth

By Bjorn Biel M. Beltan, Special Features and Content Assistant Editor, Mhicole A. Moral and Krystal Anjela H. Gamboa, Special Features and Content Writers

Economists and financial analysts saw a shock early this year when the Philippine Statistics Authority (PSA) reported on that the fourth-quarter gross domestic product (GDP) for 2025 only expanded by 3%, compared to 5.3% in the fourth quarter of 2024, and the revised 3.9% print in the third quarter of 2025. This pulled the overall economic growth for 2025 down to 4.4% from the government’s 5.5%-6.5% target, and much weaker than the 5.7% growth in 2024.

Most reports attribute the slowdown to the massive corruption scandal last year that continued to weigh on government spending, investments and consumer spending.

Amid this backdrop, alongside the historically torpid growth of the Philippine Stock Exchange (PSE), can there be a case for 2026 becoming a bullish year for Philippine equities?

Answering this question is the theme of BusinessWorld Insights Stock Market Outlook 2026: “The Bull Case for 2026: Value, Yield, and the Governance Dividend.” 

The PSE index (PSEi) closed the final trading day of last year down 7.29% from end-2024 levels, hovering stubbornly around the 6,000 mark for much of the fourth quarter. While the broader all-shares index showed pockets of resilience, the benchmark’s decline captured what many participants described as a difficult stretch for local equities: economic headwinds, cautious capital flows, and governance concerns that weighed heavily on investor sentiment.

However, economic managers are targeting 5% to 6% growth this year, and early 2026 trading sessions have shown tentative momentum, with the index pushing past its previous low-6,000 resistance.

In his keynote address, Philippine Securities and Exchange Commission (SEC) Chairperson Francis Ed. Lim framed the bull case for 2026 as a matter of confidence. While external shocks such as global rate cycles, geopolitical tensions, and commodity volatility remain beyond domestic control, he argued that what regulators can control are the rules that shape investor trust: predictability, transparency, and firm enforcement.

“We cannot control the headlines. What we can control is what capital ultimately prices in: clear rules, predictable timelines, and firm enforcement,” he said.

He outlined reforms at the SEC aimed at making capital markets “easier to access, easier to comply with, and easier to trust.”

These include firm processing timelines for applications, automatic approvals upon lapse of review periods (subject to post-audit), expanded digital incorporation through the OneSEC portal, faster turnaround for public offering registrations, and extended shelf registration validity. Cost reductions were also emphasized, particularly for micro, small, and medium enterprises (MSMEs), through discounted registration and securities filing fees, higher audit thresholds, and simplified compliance requirements.

Beyond streamlining processes, the SEC has sought to widen capital channels. Mr. Lim highlighted sector-specific capital-raising initiatives (i.e., agriculture, real estate, power, hospitals) and amendments strengthening the real estate investment trust (REIT) framework, including the expansion of eligible infrastructure assets and longer reinvestment periods. Efforts to enhance liquidity, such as improving securities borrowing and lending and expanding repo market participation, were also presented as part of these structural reforms.

All these is to create an accountable, accessible, and robust bedrock in which Philippine companies can build upon with confidence.

“Liquidity, transparency, participation — these are not abstract ideas. They are the engines of sustainable capital formation,” he said.

“The test is not whether markets can rally on good days. The test is whether confidence holds when conditions turn.”

Markets and trust

The first panel moved beyond routine forecasts and into a deeper issue: what ultimately sustains market growth?

Sun Life Investment Management and Trust Corp. President Michael Enriquez pointed to the paradox that has long defined Philippine equities.

“The Philippines has been outperforming the US equity market,” he noted, highlighting recent relative gains. Yet the valuation story remains complicated.

At present, the Philippines trades at a trade discount compared with many global peers. This could appear to be an opportunity. Cheap markets often attract investors seeking undervalued assets.

But discounts are rarely accidental.

“The Philippines is trading at a steep discount and we have recognized that. But it has to be taken relative to earnings potential,” Mr. Enriquez explained.

Even compared with other discounted markets, the Philippines faces stiff competition. As Mr. Enriquez observed, “Like China and Taiwan, they’re also cheap, but their earnings potential is much higher than [the] Philippines. There are other markets competing with [the country], that’s why we need to have a compelling reason to attract investors.”

Investors, whether domestic or foreign, allocate capital based not only on projected returns but also on the reliability of the system in which those returns will be generated. Transparency, regulatory consistency, and institutional accountability are not mere peripheral issues; they are central determinants of whether capital flows in or stays away.

The challenge, then, is more than simple growth. It is conviction.

When bad news signal opportunity

For COL Financial Group’s FVP, Corporate Strategy and Chief Investor Relations Officer April Lynn Lee-Tan, moments of pessimism in the market can paradoxically create opportunities.

“There must be a change in mindset — when everything looks bad, that’s when we should be investing,” she encouraged.

Market cycles often exaggerate sentiment. Fear pushes prices downward, sometimes beyond what fundamentals justify.

In the past, governance reforms were often seen as regulatory obligations. Today, they are increasingly recognized as strategic advantages. Companies that demonstrate transparency and accountability tend to attract more stable investor interest and enjoy stronger reputations in international markets.

Still, Ms. Lee-Tan acknowledged that Philippine equities face a structural problem: growth that is steady but rarely spectacular: “A lot of companies are growing but they’re growing slow. If you look at the index, it hasn’t gone anywhere. But if you look at the constituents, it has gone up a lot.”

Corporate leaders have increasingly adopted global standards in governance, transparency, and sustainability, recognizing that investor expectations have evolved.

In this sense, the private sector is gradually becoming a driver of governance improvements, even when public institutions lag behind.

Corruption as an investment risk

In financial analysis, risk is often quantified in percentages: currency fluctuations, interest-rate movements, or geopolitical shocks. Yet corruption functions as a different kind of risk — less easily measured but equally consequential.

During the forum, the effects of corruption were framed not only as a political concern but also as an economic allocation problem.

When corruption distorts decision-making within institutions, resources are directed toward projects that maximize private gain rather than public value. This misallocation undermines productivity, erodes investor confidence, and ultimately constrains growth.

For investors evaluating emerging markets, governance indicators often weigh as heavily as macroeconomic fundamentals.

As Mr. Enriquez pointed out, “Imagine as a foreign investor looking at the Philippines and [the government] can’t get [their] act with just flood control. Why would I invest in you?” Even strong demographic advantages or natural resources cannot fully compensate for institutional uncertainty.

In global portfolios, the Philippines occupies only a small portion of capital allocation. Investors evaluating emerging markets can choose among dozens of destinations. In such an environment, governance matters.

More importantly, public awareness of governance issues has grown significantly. Conversations about corruption, once confined to political debates, are increasingly taking place within business and financial communities.

Investors, analysts, and corporate leaders now openly acknowledge the importance of institutional integrity in shaping economic outcomes.

The Philippines, like many developing countries, finds itself navigating this tension. In theory, its fundamentals are promising: a young population, expanding digital infrastructure, and integration into regional supply chains. But persistent governance concerns continue to shape how international investors assess the country’s long-term trajectory.

Markets, after all, operate on expectations.

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COL Financial Group FVP, Corporate Strategy and Chief Investor Relations Officer April Lynn Lee-Tan

Sun Life Investment Management and Trust Corp. President Michael Enriquez

Rizal Commercial Banking Corp. Chief Economist Michael Ricafort

Dr. Danie Laurel hosted the forum and moderated the first panel discussion.

On infrastructure and political resolve

When government spending was discussed, infrastructure was emphasized. Economists have long emphasized infrastructure investment as a key driver of development. Roads, bridges, and transport systems reduce costs and increase productivity.

Yet Rizal Commercial Banking Corp.’s Chief Economist Michael Ricafort offered a much nuanced explanation for recent economic slowdowns.

“What really slowed the economy in the first place is the government underspending on infrastructure because they don’t want to put in effort to prevent corruption from happening,” Mr. Ricafort said.

Large infrastructure programs can stimulate economic activity, but they also carry corruption risks. If oversight mechanisms are weak, funds may be misallocated or delay projects.

With these challenges, governments sometimes choose caution — reducing spending rather than strengthening accountability systems.

Underinvestment in infrastructure can slow economic momentum, particularly in developing economies where connectivity remain significant.

Ultimately, governance reforms depend on political will.

“All reforms related to alleviate corruption [are] anti-corruption measures. It all starts and ends with good governance and timely justice system. Maybe that’s the missing element,” Mr. Ricafort emphasized.

Economic institutions can design frameworks and implement safeguards, but sustained progress requires leadership committed to transparency and accountability. Without that commitment, reforms risk becoming symbolic gestures rather than transformative changes.

Investors understand that the strength of the economy is inseparable from the strength of its institutions. When governance improves, capital flows more freely, innovation accelerates, and growth becomes more inclusive.

Conversely, when corruption persists, even strong economic fundamentals struggle to translate into sustained prosperity.

The future of Philippine markets

The question facing the Philippines today is not whether growth is possible. The country has already demonstrated that it is.

The deeper question is whether growth can be sustained, broadened, and anchored in institutions strong enough to withstand political cycles and economic shocks.

For Philippines, the path forward may require confronting uncomfortable truths about corruption and institutional weaknesses; but it also offers opportunity.

For every reform that strengthens transparency, every policy that improves accountability, and every technological innovation that reduces bureaucratic opacity contributes to a more credible economic system.

And credibility, in the language of markets, is the most valuable asset of all.

If optimism persists among investors, it is not because the challenges are small. It is because the potential remains large; and because the direction of reform, however gradual, still points toward a more accountable and resilient economy.

On REITs as a burgeoning sector

The second panel of the forum examined Philippine REITs within the context of income investing and shifting rate cycles.

Jesus Mariano P. Ocampo, president and chief operating officer of Investment and Capital Corporation of the Philippines, said eight listed REITs have reached a combined market capitalization of more than P430 billion as of mid-February 2026. On a trailing 12-month basis, they posted a weighted average dividend yield of about 6.04%.

The listed trusts cover commercial offices, retail and hospitality properties. Some own the land beneath their assets while others operate under long-term leases. The market also includes energy-focused REITs, one tied to renewable energy and another to traditional energy assets.

Since their initial public offerings (IPOs), several REITs have infused additional properties to raise distributable income and support dividends.

According to Mr. Ocampo, most of the trusts went public when Bangko Sentral ng Pilipinas (BSP) rates were at record lows. When rates rose toward the end of the previous administration and into the current one, REIT prices fell below IPO levels as higher Treasury bill and bond yields drew investors toward safer instruments.

“People will go to the best yield so REITs have to catch up and by that prices have to come down,” he added.

Japhet O. Tantiangco, research manager at Philstocks Financial, presented a study that examined whether interest rates have a statistically significant effect on local REIT prices.

In theory, REIT prices and interest rates move inversely. Higher rates can slow spending, raise capital costs for leveraged trusts and alter investor risk premiums. Those dynamics suggest REIT prices should fall when rates rise.

Mr. Tantiangco’s study used trading data from January 2023 to February 2026, covering 762 observations. The three-month Treasury yield served as a proxy for policy-sensitive rates, and the PSEi represented market confidence.

The findings showed that for most listed REITs, policy-sensitive interest rates did not have a statistically significant effect on price performance in either the short run or the long run. REIT price performance often had an inverse relationship with its own previous-day movement, which Mr. Tantiangco attributed in part to profit taking.

“The general market performance or investor confidence have a statistically significant direct relationship with REIT performance in the short run but not in the long run,” he explained.

Mr. Tantiangco said this suggests other factors, including asset expansion and sector exposure, may carry greater weight.

John Tristan Guillermo D. Reyes, president and director of BDO Securities, pointed to August 2024 as a turning point, when the BSP began cutting policy rates from a peak of 6.5%.

Since then, REITs have outperformed the broader market on a total return basis. Some listed REITs posted double-digit gains, with total returns ranging from the high teens to above 40% for select names.

“Lower discount rates translate to higher valuations and stronger credit conditions, [as it] helps both sponsors and tenants the REIT landscape. The REIT landscape is also evolving after amendments to the REIT law,” he explained.

He added that in an environment of softer growth and subdued inflation, investors tend to favor income visibility and stability.

“In this era of low rates, the opportunity is not just about chasing yield, it’s about identifying which REITs in property segments offer the most durable cash flow, strongest tenant profiles, and best protection against future rate volatility,” said Mr. Reyes.

Alessandra Araullo, chief investment officer of ATRAM Group, said investors must look beyond headline yields.

“Falling rates alone do not automatically make REITs attractive,” Ms. Araullo said.

With the 10-year government bond yielding around 6%, and after a 20% tax translating to roughly 4.8%, she said some REITs offer only a narrow premium after accounting for the 10% tax on dividends.

She added that allocators often look for a spread of about 200 basis points over the 10-year rate before the asset class becomes compelling. A 25-basis-point rate cut alone may cap near-term upside if spreads remain tight.

On the other hand, Ms. Araullo cited uneven property recovery. Prime commercial business district offices and flagship malls show resilience, while offices and some residential segments remain weak.

“At this juncture, it’s really all about selectivity and asset quality, and that’s what’s going to determine an investor’s success in REITs,” she explained.

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BDO Securities President and Director John Tristan Guillermo D. Reyes

Investment and Capital Corporation of the Philippines President and Chief Operating Officer Jesus Mariano P. Ocampo

Philstocks Financial Research Manager Japhet O. Tantiangco

ATRAM Group Chief Investment Officer Alessandra Araullo

BusinessWorld Corporate Editor Arjay L. Balinbin

Opening a new chapter in REITs

Recent amendments by the SEC expanded the definition of income-generating real estate assets eligible for REIT inclusion. The revised rules now cover toll roads, data centers, fiber optic networks and ports, including airports and seaports.

Mr. Ocampo said the changes pave the way for infrastructure-themed REITs. Infrastructure assets often have longer concession periods and more predictable revenue streams.

The SEC also extended the period for reinvesting proceeds to two years from one year and allowed greater flexibility in using funds, including debt repayment or acquisition of debt securities tied to real estate or infrastructure projects.

Ms. Araullo said the two-year window gives sponsors more time to deploy capital and may improve the quality of asset infusions.

“Sponsors are not rushed to deploy just for the sake of meeting the deadline. For investors, the combined effect is a larger pipeline of potential REIT assets and better quality injections.”

When asked which property types could see faster adoption, Mr. Tantiangco cited infrastructure linked to telecommunications, noting investor interest in assets connected to artificial intelligence trends.

“Once they are introduced into the market, there could be clamor with respect to the investors, because this is the trend right now. Investors are going to look at where can they can get closest to the global trend,” he explained.

Previously, the sector leaned heavily on commercial and retail property, with limited exposure to other industries. A more diverse lineup, Mr. Tantiangco said, gives investors options aligned with varying risk appetites.

For Mr. Reyes, infrastructure assets with inflation-linked or consumer price index-based tariff adjustments may offer built-in dividend growth.

He also noted that exposure may extend beyond traditional malls and offices to infrastructure and data centers, diversifying revenue streams and supporting dividend growth over the medium to long term.

On whether regulatory changes will immediately drive more listings, Mr. Ocampo said companies may begin preparations this year, but infrastructure assets are expected to face regulatory hurdles.

Mr. Tantiangco said listing decisions also hinge on market confidence and participation. He pointed to fluctuations in total traded value and risk appetite as factors issuers will watch.

“We’ve been seeing a decline in net value turnover in the past days, hoping that we’ll see a reversal. If we really see strong market participation, which signifies that risk appetite is returning in the market, then perhaps we will see more listings with respect to the REITs.”

Meanwhile, Ms. Araullo described the rule changes as structural, adding that the environment for a broader REIT market is taking shape despite short-term sentiment challenges.

“We can expect the fruits of it to show up maybe in the next two to three years,” she said.

Developing a maturing market

Panelists agreed that companies considering conversion or listing must show operational strength. For instance, net operating income should outpace capitalization rate expansion.

According to Mr. Reyes, investors should study the sponsor’s asset pipeline and sector exposure, whether in offices, tourism, energy or infrastructure. The ability to inject quality assets over time supports dividend growth.

Still, Mr. Ocampo warned that asset infusions must be accretive to dividend per share. Dilutive transactions could pressure payouts even if total assets rise.

Macroeconomic conditions, according to Mr. Tantiangco, still influence performance. While his study found no statistically significant link between interest rates and REIT prices in recent periods, fundamentals such as expansion pace and sector resilience play a larger part.

“We still have to look at the general economy. The general economy still has a say on how REITs performed,” he added.

On dividend sustainability, Ms. Araullo listed occupancy trends, rental revisions, payout ratios and debt refinancing risk as key indicators. She also cited same-property net operating income growth and the presence of nonrecurring income that temporarily props up dividends.

 “Markets have moved ahead, priced in lower rate environment. I think it’s really the structural changes or the policies to yield better dividends for the asset class,” she explained.

This BusinessWorld Insights forum was presented by BusinessWorld Publishing Corp. and was sponsored by BDO Capital, DigiPlus, SM Investments Corp., and SM Supermalls; with the support of Asian Consulting Group, Asia Society of the Philippines, British Chamber of Commerce of the Philippines, French Chamber of Commerce and Industry Philippines, Management Association of the Philippines, Philippine Chamber of Commerce and Industry, Philippine Franchise Association, Philippine Retailers Association, official venue partner Lanson Place Mall of Asia, Manila, and media partner The Philippine STAR.