Capital Flight Intensifies as Governance Risk Spikes
Capital is cowardly. It flees at the first sign of structural decay. As of November 24, 2025, the Philippine Stock Exchange Index (PSEi) has buckled under the weight of a widening executive rift. The latest allegations by Senator Imee Marcos, targeting President Ferdinand Marcos Jr. and First Lady Liza Araneta-Marcos regarding alleged cocaine use, have transitioned from tabloid fodder to a quantifiable risk premium. Foreign institutional investors are not trading on the morality of the claims; they are trading on the potential for a constitutional crisis.
The numbers reflect a clear exit strategy. Net foreign selling reached 4.2 billion PHP in the last 72 hours. This selling pressure is concentrated in the heavyweights of the index. SM Investments Corp (SM) and BDO Unibank (BDO) have seen their valuations compressed by 3.8 percent and 4.1 percent respectively since the news broke. When the ruling family enters a state of internal litigation, the legislative agenda stalls. For the global desk at Bloomberg, the PSEi is no longer a growth play but a volatility hedge.
The Anatomy of the Scandal Premium
Political instability functions as a hidden tax on equity. The mechanism is simple. When a high-ranking official like Senator Imee Marcos publicly accuses the sitting President of drug use, it signals a collapse of the UniTeam alliance that dominated the 2022 elections. This is not mere gossip. It is the dismantling of the political machinery required to pass tax reforms and infrastructure budgets. Credit rating agencies, including Fitch and Moody’s, maintain a stable outlook for now, but the Credit Default Swap (CDS) spreads for Philippine sovereign debt have widened by 12 basis points in the last week.
Investors are pricing in a ‘Governance Discount.’ This discount is currently calculated at approximately 150 basis points over the regional average. While the Reuters Asian Market Desk reports stability in the Nikkei and the ASX, the PSEi remains an outlier. The volatility is driven by the fear of impeachment proceedings or a sudden shift in the cabinet, which would paralyze the Department of Finance.
Comparative Regional Performance and Capital Outflows
The Philippines is currently underperforming its ASEAN peers by a significant margin. While Vietnam and Indonesia are benefiting from the ‘China Plus One’ strategy, the political noise in Manila is creating a bottleneck for Foreign Direct Investment (FDI). The table below illustrates the divergence in performance over the last thirty days, a period coinciding with the escalation of the Marcos drug allegations.
| Market Index | 30-Day Performance (%) | Net Foreign Flow (USD M) | Political Risk Rating |
|---|---|---|---|
| PSEi (Philippines) | -4.12% | -214.5 | High |
| IDX (Indonesia) | +1.25% | +88.2 | Moderate |
| SET (Thailand) | -0.45% | -12.1 | Moderate |
| KLCI (Malaysia) | +0.80% | +45.7 | Low |
Institutional desks are shifting allocations toward the Bangko Sentral ng Pilipinas (BSP) treasury bills rather than the equity market. The 91-day T-bill rate has seen increased demand as a safe haven, even as inflation remains within the 2 to 4 percent target range. The logic is clear. If the executive branch is preoccupied with defending personal reputations against drug allegations, the execution of the ‘Build Better More’ infrastructure program will inevitably lag. Construction firms like EEI Corporation and Megawide are already showing signs of a slowdown in contract awards.
The Technical Mechanism of the Sell-off
The sell-off is not a retail panic. It is algorithmic. Large blocks of shares are being offloaded via Dark Pools to avoid immediate price slippage, but the volume is too high to hide. The primary concern among analysts is the ‘Duterte-Marcos Fracture.’ Senator Imee Marcos’s alignment with the Duterte camp signals a total breakdown of the 2022 coalition. For a multinational corporation, this means the rules of the game might change by 2028, or sooner if an impeachment move gains traction in the House of Representatives.
Technically, the PSEi has broken below its 200-day Simple Moving Average (SMA). This is a bearish signal that often triggers automated sell orders from quantitative hedge funds. The support level at 6,600 is currently being tested. If this level fails to hold by the end of the trading week, the next psychological floor is 6,450. The Peso is also feeling the heat, trading at 57.15 against the USD, a depreciation that reflects the weakening confidence in local governance.
Watch the January 2026 Budget Implementation
The immediate focus for market participants is no longer the validity of the cocaine allegations, but the survival of the 2026 National Budget. The first major milestone to watch is the January 15, 2026, release of the initial disbursement schedule for Department of Public Works and Highways (DPWH) projects. If the political infighting leads to a delay in these releases, the PSEi will likely face a secondary correction. Investors must monitor the 6,450 support level as the critical pivot point for the first quarter of the new year.
