By Ignacio R. Bunye
During a recent meeting with banking colleagues, our conversation somehow led to a discussion of the state of our capital market. It was observed that the Philippines lags behind its neighbors principally, Thailand, Malaysia, and Singapore and this has negatively affected our competitiveness.
To be fair, there is an existing blueprint called the Capital Market Development Plans For Years 2019-25 (Third Blueprint). It was prepared by the Capital Market Development Council which includes as members the main regulators – BSP, SEC, Insurance Commission and the association of industry players – namely BAP, PSE, FINEX.
It is a comprehensive document with the overarching objective of pursuing reforms that will 1) Deepen the capital market. 2) Promote more inclusion. and 3) Attain sustainable long-term growth.
It addresses the three main areas of concern: 1) Supply of Capital 2) Demand for Capital and 3) Market Infrastructure.
On the Supply of Capital, the Third Blueprint prescribes the following: a) Increase issuer participation. b) Increase market liquidity. c) Improve participation of market intermediaries. d) Develop alternative products and regulations. e) Enhance education of potential issuers of securities.
On the Demand for Capital, the Third Blueprint prescribes the following: a) Promote the development of a deep and broad institutional and retail investor base. b) Increase the level of funded pensions and create a professional management eco-system, and c) Enhance investors education.
On Market Infrastructure, the suggestions include: a) Improve accessibility of markets through technology, and b) Enable price discovery and efficient resource allocation.
Current literature lists some related suggestions on how to deepen the Philippine capital market, as follows:
- Encourage more companies to go public: The Philippine Stock Exchange (PSE) has only a limited number of listed companies compared to its Southeast Asian peers. The government can offer incentives for companies to go public, such as tax breaks or easier regulatory requirements.
- Enhance the regulatory environment: The Securities and Exchange Commission (SEC) can enhance the regulatory environment to encourage more investors to participate in the capital market. This can be done by improving disclosure requirements, strengthening corporate governance standards, and increasing transparency.
- Promote financial education: Financial education can help increase the public’s awareness and understanding of the capital market. The government can work with educational institutions to incorporate financial education into the curriculum and offer programs that teach basic investment principles.
- Develop new financial instruments: The PSE can work with financial institutions to create new financial instruments that cater to a wider range of investors. This can include products that provide exposure to different asset classes or that offer more flexible investment terms.
- Attract foreign investors: The government can implement policies that encourage foreign investors to participate in the Philippine capital market. This can include reducing restrictions on foreign ownership, providing tax incentives, and streamlining investment processes. A low-hanging opportunity is to link the Philippine Stock Exchange with the Singapore, Malaysia or Thai stock exchange. This will, hopefully, increase foreign investor interest in Philippine securities.
All of the above represent a beautiful house building plan. But who will build the house for us? As a young boy, I recall a film about an Arabian prince who set out to rescue his beloved princess who was imprisoned in a rival’s palace. He asked the help of friend who was quick to propose a rescue plan. The friend confidently responded: “At night, we will surround the palace with 2,000 soldiers. Our soldiers will climb the walls, overpower the guards and rescue the princess.” Perplexed, the prince ask: “But where will we get the 2,000 soldiers?”