[Finterest] AREIT, Chinabank join the PSEi: Here’s how it affects the average investor

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MANILA, Philippines – Change is coming to the Philippine Stock Exchange Index (PSEi) starting Monday, February 3, 2025, as AREIT Incorporated and China Banking Corporation (CBC) join the roster of the country’s top 30 publicly traded companies.

What does this mean for investors like you and me? Let’s break it down.

Why the PSEi refresh matters

The PSEi is like the who’s-who list of the Philippine Stock Exchange. It’s made up of 30 companies that represent the most traded, highly capitalized, and well-performing stocks in the country. In many ways, the PSEi acts like a snapshot of the market and economy’s health.

Rebalancing happens twice a year to ensure the index stays current. Companies are added or removed based on strict criteria, including liquidity (how often their stocks are traded), market capitalization (the total value of a company’s shares), and free float level (how much of their stock is freely traded in the market).

For companies like AREIT and CBC, being part of the PSEi brings higher visibility, increased trading volumes, and a potential boost in stock prices as funds tracking the index adjust their portfolios. For small retail investors, that could mean more price movements and trading opportunities.

“The inclusion of AREIT and CBC in the PSEi signifies that they have reached a level of liquidity, market capitalization, and trading activity comparable to some of the largest firms in the Philippines,” Andoy Beltran, vice president and head of business development and market education at First Metro Securities, told Rappler.

So, whose places are the two companies taking? Nickel Asia Corporation and Wilcon Depot Incorporated are stepping down from the PSEi and moving to the PSE MidCap Index, which focuses on medium-sized companies. Both AREIT and CBC were also previously part of the PSE MidCap Index before joining the PSEi.

A REIT first and CBC’s comeback

AREIT’s inclusion is historic. It’s the first real estate investment trust (REIT) to make it to the PSEi.

In case you’re not familiar, REITs in the Philippines are companies that own income-generating properties like malls and office buildings. They’re required by law to distribute at least 90% of their income to shareholders, making them a favorite for dividend-seeking investors. [READ: Not all REITs are created equal]

But AREIT isn’t just any REIT; it’s the Philippines’ very first, launched back in 2020. Its portfolio includes prime office spaces such as Solaris One, Ayala North Exchange, One Ayala East and West Towers, and Ayala Triangle Gardens Tower 2, along with premier Ayala malls like Glorietta 1 and 2, and Greenbelt 3 and 5..

“The inclusion of the Philippines’ very first REIT highlights the increasing acceptance of REITs as a mainstream asset class in the Philippine market. AREIT’s strong performance and consistent dividends have attracted both institutional and retail investors,” Beltran told Rappler.

Since its initial public offering at P27 per share, AREIT has climbed to P40.10 as of January 24, 2024 — an impressive 48.5% increase. In 2024, it distributed P2.25 in dividends per share, offering a trailing dividend yield of 5.61%.

“It is notable that our very first listed REIT has also become the first REIT to make it to the PSEi,” PSE president Ramon Monzon said in a statement. “This shows the immense potential REITs have as an investment product.”

On the other hand, CBC is no stranger to the PSEi, having been part of the index back in May 2010 to 2011. Its return highlights its strong position in the banking industry. The Sy-led bank reported a record P18.4 billion in net income in Q3 2024, a 13% year-on-year increase. CBC’s strength was also reflected in its stellar stock price performance, emerging as the second-best gainer of 2024 with a 104.2% increase, trailing only DigiPlus, the standout performer of the year with its meteoric 220.6% rise.

“This reflects its growth trajectory and solid fundamentals in a highly competitive banking sector,” said Beltran. “Its strong balance sheet and market share contributed to its elevated status.”

As the fifth-largest bank in the Philippines, CBC boasts total assets of over P1.74 trillion as of Q3 2024. It now stands alongside other banking heavyweights in the PSEi, including Metrobank, BPI, and its sibling under the Sy Group, BDO — the country’s largest bank. The only member of the top five banks not represented on the index is the government-owned Landbank, which remains unlisted.

What this means for investors

When AREIT and CBC become part of the PSEi, Beltran expects increased trading activity and higher demand for these two stocks. Passive funds — mutual funds, UITFs, and ETFs that track the PSEi — will need to adjust their portfolios to include AREIT and CBC. This wave of buying from institutional investors could boost market sentiment and, in turn, push up their stock prices. [READ: Philippines’ best managed funds for 2024]

“The inclusion may positively impact investor confidence, potentially leading to short-term price appreciation,” the First Metro Securities vice president told Rappler.

Adding AREIT and CBC to your portfolio could also enhance diversification, offering exposure to separate industries. AREIT provides access to income-generating real estate assets, combining capital appreciation with quarterly dividends, while CBC offers access to the sustained growth of its core banking and financial services and boasts a strong ESG score, as Beltran noted.

While the inclusion of AREIT and CBC in the PSEi is certainly good news for their stockholders, investors should remain mindful of market timing. Beltran cautioned that “the effect on price might moderate after the initial excitement, as valuations eventually align with market fundamentals.” This suggests that while an initial surge in trading activity and stock prices is likely, relying solely on this short-term momentum might not be the best strategy if you’re planning to invest in these stocks.

Another related risk to watch out for is market mispricing. Some investors may overestimate the long-term benefits of the inclusion and buy in at unsustainable levels. Additionally, increased trading activity could bring volatility, leading to price swings that might catch unprepared investors off guard.

“Retail investors should assess their risk tolerance and investment goals before taking positions in these stocks,” Beltran emphasized. “While index inclusion is certainly a positive indicator, the ultimate decision should be grounded in a thorough evaluation of fundamentals, market trends, and time horizon.”

Do you have plans to add AREIT and CBC to your portfolio? – Rappler.com