The Philippine Stock Exchange index (PSEi) plunged to a two-year low on Friday, Jan. 31, entering bear market territory, as funds rebalanced portfolios ahead of index recomposition.

Investor sentiment was also dampened by the Philippines' low economic growth rate for 2024.

The main index dropped 245.07 points, or 4.01 percent, closing at 5,862.59. The mining sector led the decline, while banks bucked the trend with strong gains. Volume surged to 1.76 billion shares worth P21.61 billion. Losers outnumbered gainers 135 to 76, with 42 unchanged.

"Philippine shares witnessed a massive sell-off as many index members were lightened across the board to buy into new index members CBC and AREIT, which will be included in the 30-member PSEi next month," said Luis Limlingan, managing director of Regina Capital Development Corporation.

He added, "investors also remained cautious as fourth-quarter GDP growth missed expectations at 2.3 percent."

Juan Paolo Colet, managing director of Chinabank Capital Corporation, said, "the market crashed into bear territory in the face of disappointing GDP results, a major index rebalancing, and Trump's looming threat of massive tariffs on Canada, Mexico, and China." He noted, "We are dangerously close to the market's critical support at 5,700, but barring any negative surprises this weekend, we may see a relief rally next week."

Michael Ricafort, chief economist at Rizal Commercial Banking Corporation, said, "the PSEi declined for the fifth straight trading day, closing at new two-year lows—since October 12, 2022, when it closed at 5,853.63—after entering bear market territory."

A bear market is defined by at least a 20 percent drop from the most recent peak. The PSEi is now down 22.9 percent from its recent high of 7,604.61 on Oct. 7, 2024, nearly four months ago.

Ricafort noted the drop follows softer-than-expected local GDP data, which was the slowest in 1.5 years; less dovish US Federal Reserve signals; and recent threats of higher US tariffs.