By Honey Madrilejos-Reyes
Reporter
MARKET pundits use the term “bull” to describe a stock market experiencing continuing uptrend, on the back of optimism, investor confidence and expectations that strong results would be sustained.
This metaphor has become a favorite by experts to describe the Philippine stock market today. Why is it so? From January to October this year, the PSE Index (PSEi), which is the barometer of stock market’s performance, closed at 2,708.5 points, or 29.2 percent higher than its 2,096.04 level at the end of 2005.
The PSEi is composed of 30 listed companies identified by the PSE to best reflect the performance of the stock market. These companies must satisfy a set of criteria, including a free-float portion—or issued and outstanding shares not held by strategic owners and partners—of at least 10 percent of the outstanding shares.
PSE president Francis Ed. Lim, speaking before a BusinessMirror sponsored forum on Tuesday, said the market mirrors the economic prospects of the country.
“The stock market takes the increase in investors’ participation as a vote of confidence on our economic fundamentals. Interest rates are falling, government deficit is being addressed and tax collections are improving,” said Lim.
“The country’s macroeconomic condition will have a big impact on the stock market. If these fundamentals are sustained, for sure we will continue to have a bull run until next year.”
Francisco Liboro, president of the Association of Securities Analysts of the Philippines (ASAP), agreed with Lim.
“If the economy does well, definitely, interest on stocks will be sustained. I think this bull market can last for another three years if everything would fall into place,” Liboro said, adding, “If the government is not distracted, we [the stock market] will not be distracted.”
New products
While the government solidifies economic fundamentals, Lim said the PSE would complement government efforts with various strategies to attract more investors to the capital market.
For one, the PSE is moving to introduce new products such as the Real Estate Investment Trust (REIT) and the Securities Borrowing and Lending (SBL) facility.
REITs, now being offered in many markets abroad, is a security that sells like a stock on the major exchanges and invests in real estate directly, either through income-producing properties or mortgages. It combines the capital of many investors and enables small investors to participate in real-estate investments.
In the Philippines, for instance, major property developers can identify their respective assets and pool them under an entity, and have it listed separately at the bourse.
These assets can be shopping malls, residential and office buildings, parking lots and resorts.
The Philippine legislature has committed to pass by the end of 2007 an enabling law that would govern the establishment of REITs. Once in place, investors would have a new instrument to grow their investments apart from entrusting their funds to banks, investing in bonds, and the stock market.
Lim said the PSE is now in the process of drafting the rules on REIT even as it recognized the unlikely passing of the law this year. Part of the rules would be the granting of tax relief.
“Investing in REIT can be profitable because of the mandatory dividend declaration of as much as 90 percent. But to be able to do that, it should receive special tax considerations like exemption from income and corporate taxes,” Lim said.
Another product, the SBL, is also being pushed by the bourse. In June, the Securities and Exchange Commission approved the proposal to create SBLs.
Lim said the PSE could tap the state pension funds Government Service Insurance System (GSIS) and Social Security System (SSS) to be part of the SBL program.
SBL involves the lending of shares through a broker to a borrower who needs them to support settlement obligations or trading strategies. Shares are transferred from one party to another without any change in the actual or beneficial owner of the shares involved.
SBL transactions allow a lender, whether an active or a passive investor in a listed stock, to earn income on top of dividends.
More IPOs
AT present, there are 239 companies listed on the stock exchange. The goal of the PSE, Lim said, is to increase it by at 10 every year.
After the listing of Alliance Tuna International Inc. and the scheduled IPO of the government-owned Philippine National Oil Co.-Energy Development Corp. (PNOC-EDC) in December, Lim said two more companies registered with the Board of Investments (BOI) are eyeing to go public in the early part of 2007.
“I’ve met recently with two companies, which are in the power and transport and energy distribution industries,” he said, refusing to divulge the names of these companies.
The PSE is also eyeing more savings banks and government-owned and controlled corporations (GOCCs) to sell part of their shares through public offering.
“It would be good to see the likes of Development Bank of the Philippines and Land Bank of the Philippines to list at the bourse. But I understand such move would require an amendment to their charters. Being developmental institutions, these banks are not marketable,” Lim said.
He said he would take a look at the General Banking Act to see if there’s a provision pertaining to banks going public after a specific period from the establishment of operations.
Rural banks would likewise be wooed, Lim said. One rural bank has already signified interest to go public next year, he said in an earlier interview.
As for the GOCCs, he said going public would allow them to be more transparent and implement good corporate governance.
Business Mirror
November 15, 2006
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