Stock market opportunities in the second half of 2025

The first half of 2025 has just come to a close, and the Philippines Stock Exchange Index is down 2.5 percent for the year-to-date period. Yet for investors who took the time to research and select high-quality names, the rewards have been notable—several companies delivered double-digit total returns through both share price gains and generous dividends.

What fueled the outperformance?

There were numerous undervalued stocks with improving fundamentals. Many companies presented attractive entry points due to low valuations, bolstered by better-than-expected earnings and rosier growth outlook. There were also a number of firms that paid out larger-than-expected cash dividends, unlocking shareholder value.

Finally, there were sector-specific tailwinds. Key themes like rising gold prices, the strong growth of e-gaming and earnings and dividend accretive real estate acquisitions drove sector-focused rallies.

Cases in point:

• Gold miners Philex, Apex and OceanaGold posted total returns of approximately 131.6 percent, 87.6 percent and 37.9 percent respectively—mirroring surging gold prices.
• E-gaming stock DigiPlus soared nearly 100 percent, thanks to its blockbuster earnings growth (209 percent in 2024 and 110 percent in the first quarter of 2025) driven by the significant expansion of online gaming in the country. Meanwhile, Bloomberry picked up 16.3 percent on excitement surrounding the launch of its MegaFunalo e-gaming platform in June.
• Non-index stocks PNB and Puregold returned 104 percent and 20.2 percent, driven by stronger-than-expected earnings and larger-than-expected cash dividends.
• REITs like RL Commercial REIT, Citicore Energy REIT, Filinvest REIT and AREIT delivered total returns of around 35 percent, 22 percent, 17 percent and 14 percent, respectively, thanks to asset injections that support dividend growth.

Why active stock-picking still makes sense in the second half?

Active investing will most likely continue to outperform passive investing for the rest of the year. The country’s economic growth is expected to stay modest as headwinds such as the global economic slowdown and higher tariffs on exports to the US cap upside potential.

Consensus gross domestic product growth forecast remains under 6 percent—the Organisation for Economic Co-operation and Development estimates 5.6 percent, while the government recently trimmed its target to a 5.5–6.5 percent range.

Similar to the first semester, this means that many companies will most likely deliver unimpressive single-digit earnings growth, limiting the upside potential of the broader market.

However, there will be some favorable economic developments, such as the continuous decline in inflation, thanks to falling rice and oil prices. This would help boost consumer spending growth as people have more money for non-essentials.

Benign inflation would also give the Bangko Sentral ng Pilipinas room to cut rates further. In fact, it may cut rates more than once during the second half of this year, helping bring down interest rates faster.

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Potential sector winners

Here are some sectors that could outperform the general market in the second half of 2025:

• Consumer sector. Lower inflation supports stronger spending—sweetening the outlook for consumer companies.
• Smaller banks. Smaller banks are expected to enjoy higher net interest margins due to lower interest rates as their funding cost goes down, while lending rates on loans that target consumers remain sticky.
• Property sector. Reduced rates should boost housing demand and help clear excess inventory of residential condominiums.
• Utilities and REITs. Demand for alternative investments that pay higher and stable income will increase as interest rates on time deposits and bonds go down.
• Importers and airlines. The stronger peso should help boost margins of firms with dollar-denominated costs. Falling oil prices should also benefit airlines.

Risks to monitor

Risks to our market view include the possibility that the Fed remains on hold, as it focuses on US economic indicators that remain resilient instead of those pointing to easing inflation and a weakening jobs market. A more hawkish Fed could prevent interest rates from falling rapidly and the peso from strengthening.

There are also increasing signs that the US economy may be heading toward a recession. Historically, every US recession has triggered a bear market—and Philippine equities have consistently been caught in the contagion.