By Judith Balea, abs-cbnNEWS.com
MANILA – If efforts to reform the Philippine Stock Exchange (PSE)—including legislated reforms and
products to entice investor interest—have been barely enough to create a deeper and richer equity capital market in the country, perhaps the better approach is for external forces to jolt the local exchange.
This was the theory that led PSE corporate governance head Jonathan Juan Moreno to pursue a project that involved an ostentatious goal of putting the Philippines in global investors' map.
The former military-officer-turned-corporate governance expert who joined the exchange in 2007 did his homework first.
He met with managers of American and European investment funds, academics, rating agencies and government officials in Singapore, Hong Kong, Vietnam, and Thailand. He concluded that the strongest concerns about governance in the Philippines stem from lack of enforcement.
"The rules exist, but seem to make little difference to investors because they are not adequately enforced," he told abs-cbnNEWS.com in a previous interview.
He said foreign fund managers and investors are looking at markets where they are assured of 3 aspects: profitability, safety, and liquidity.
The safety aspect is hinged on corporate governance standards, which boil down to, among others, adherence to disclosure rules. Foreign investors also cited the governance standards of regulators of a financial market, which in the Philippines, involve the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, and the PSE as a Self-Regulatory Organization (SRO). The SRO status refers to the ability of the PSE to police its own ranks, and ensure that the brokers and market players follow its disclosure and other regulatory rules.
RP barely in investors’ radar
Moreno said foreign investors consider the Philippines’ capital market as their "last resort" because of concerns over profitability, transparency and security.
"They look at the Philippines last when they invest their money," he remarked.
He shared that in a typical Asian portfolio of a global fund manager, only an average of 0.8% is invested in the Philippines.
Usually, when a global fund manager has a mandate to invest funds meant for emerging markets, some equity stocks in the Philippines are just used as a plug-in. For example, if a fund manager has to have 20% of his portfolio in Asia, and he only has 19.5% at the end of the reckoning period, some stocks in the Philippines are added in to round off his numbers.
The lack of foreign investors in an equity market the size of the Philippines has a chicken-and-egg impact on local investors.
Only less than 1% of the Filipino population invest in the stock market, a 2007 PSE study revealed.
There were only 430,681 accounts being maintained for Filipinos as of that year, a banner year for the exchange, and of the number, 103,412 or just a little over one-tenth of 1% of Filipinos were active or involved in at least one trade per year.
Foreign accounts were much smaller, totaling only 4,713.
For these reasons, Moreno scoured for reform models that the PSE could follow. Currently, there are indices like the FTSE4Good based in United Kingdom, and the Dow Jones Sustainability Index based in the United States, that sift through listed companies that profess to meet higher ethical, environmental, and social standards. Read More...
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