Understanding the Philippine Stock Exchange Index (PSEi)

PSEi climbed 1% or 65 points from yesteday’s close

This is a common news in today’s bullish market, and as the trend continuous (where everyone is very optimistic about it), you’ll be hearing similar news every now and then.

But, do you actually understand what it means?

With our goal to make investments within reach of the masses, let us explain these terms where everyone could easily grasp how it works.

What is the Philippine Stock Exchange Index (PSEi) anyway?

Wikipedia defines a Stock Market Index this way:

“A stock index or stock market index is a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks (sometimes a weighted average).”

There are three important keypoints in this definition, and these are:

  1. Method of Measuring of Value
  2. Section of the Stock Market
  3. Selected Stocks

Method of Measuring

The Philippine Stock Exchange Index or PSEi is measured every trading day. It actually moves dynamically as the whole Stock Market moves. Thus, for today’s trading, PSEi may have a value of 6,600 points, and tomorrow, it may read as 7,000 points. Thus, an increase of 400 points.

Let’s defer discussing the manner how this is computed. What’s important here is that the act of measuring the day-by-day activity of the stock market. This helps investors, fund managers, and other finance professionals to keep track of the market if it is growing or declining.

Section of the Market

Stocks listed in the Stock Market are categorized into different industries where they belong to. For the Philippine Stock Market, we use the following sectors (or index):

  • Financials
  • Industrial
  • Holding Firms
  • Services
  • Mining and Oil
  • Property

Our main index is the PSEi where it contains a basket of 30 well selected companies in different industries. We call the companies included in that basket as Blue Chip Stocks.

Selected Stocks

The PSE index’s basket of stocks are carefully selected by the Philippine Stock Exchange to measure the overall movement of the stock market at any given trading day. These selected stocks, or Blue Chips, are representative of the sectors of all stocks listed in the market.

Investopedia defines Blue Chips this way:

Stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. While dividend payments are not absolutely necessary for a stock to be considered a blue-chip, most blue-chips have a record of paying stable or rising dividends for years, if not decades. The term is believed to have been derived from poker, where blue chips are the most expensive chips.

 

There you go! The next time you hear news on record highs, you now know what they mean and finally enjoy it. :)

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  • Jun

    I invested in UITF last January 2013 in peso balance fund, equity fund and fixed growth fund for ten thousand each. Now all of my investment is going down except fixed growth fund little bit going up. When is the right time to redeem my investment .please help me to make a decision. Thanks..

    • Nick Raquel

      Hi Jun,

      I know it’s tough seeing your investments go down, lalo n kung this is the first time you have ever invested in a financial market.

      Just hold on tight and try not to make any sudden move. The best thing you can do is continue making investments. Things will rebound sooner or later. And once they do, you’ll be in a better position since you have invested when everything is at the ropes.

      Keep in touch. I’ll have a blog post prepared in a few days about this.

      Enjoy investing

      • http://fflavianito@yahoo.com Jun

        Thanks for your reply. I will always keep in touch with your blog…

      • Damian

        Hi Nick,
        Just a quick question, I have an account in First Metro Sec and my FAMI is linked on their website. It is indicated in the FAMI tab that you can BUY/SELL your funds with the broker, does it mean you don’t need need to fill up redemption form to be submitted to FAMI? Does the proceed from selling your funds will be directly added on your FMSEC portfolio?

        Thanks,
        Damian

        • Nick Raquel

          I’ve tried it and yes, no redemption forms are necessary. The process though is not yet that smooth since I have to submit the sell transaction more than twice. In all fairness I did receive my funds after several days.

          Proceeds were credited in my metrobank account.