By means of Revin Mikhael D. Ochave, Reporter
REGULATORS must be underPursue “stronger reforms” to ensure Philippine capital markets can attract more investment and boost trading activity, analysts said.
The Philippine stock market remains “relatively small” compared to regional peers despite strong economic growth over the past decade, the Organization for Economic Co-operation and Development (OECD) said in its capital market survey of the Philippines.
“Stronger reforms are needed if we want to significantly boost the stock market,” said Juan Paolo E. Colet, chief executive of China Bank Capital Corp. in a Viber message.
On its last trading day on December 27, the benchmark Philippine Stock Exchange index (PSEi) closed at 6,528.79, up 1.2% from 6,450.04 at the end of 2023. This was the first time the main index higher year closed. on an annual basis since 2019. The PSEi returned to the 7,000 level in September after more than 19 months, but has fallen since then.
To stimulate the market, Mr Colet said regulators should offer tax breaks to listed companies that meet certain public float, daily trading and value metrics.
Mr Colet said public bidding and listing rules could be liberalized, while tender and delisting rules would be tightened.
“We need reforms that make public equity markets more attractive in terms of tax and cost efficiency, ease of transaction, accessibility, relevant products and protection of minorities,” Colet said.
He also urged regulators to penalize shell companies without clear business plans.
He said Republic Act No. 9505 or the Personal Equity and Retirement Account (PERA) Act should be amended to increase the annual contribution limit and income tax credit for investments in listed stocks.
PERA is a voluntary savings program that supplements retirement benefits from the state-run Social Security System and the Government Insurance System.
‘RELATIVELY SMALL’
According to its report released in December, the OECD noted that as of early 2024, the Philippine stock market had 269 listed companies in the Main Board and the SME Board with a total market capitalization of US$234 billion, equivalent to 52% of the gross profit of the country. domestic product (GDP).
“Compared to peer countries, the Philippines has the lowest number of publicly traded companies and ranks second in market capitalization as a percentage of GDP,” the report said.
The capital raised through IPOs and secondary public offerings is also lower than that of comparable countries in the region.
For example, 95 Philippine companies have raised nearly $13 billion through IPOs since 2000, while in Vietnam, 584 companies raised $36 billion during the same period.
“Between 2000 and 2023, capital raised through IPOs in the Philippines represented just 0.2% of GDP, far less than in all other comparable countries except Indonesia,” the OECD said.
This year, the PSE had only three IPOs: OceanaGold (Philippines), Inc., Citicore Renewable Energy Corp. and NexGen Energy Corp. By 2025, the PSE aims to have six IPOs and attract 120 billion euros in capital.
The OECD said public equity markets in the Philippines could be expanded, noting that in 2021 there were about 400 non-financial companies with assets exceeding P5.6 billion that could have potentially gone public. It was also noted that state-owned companies could also be encouraged to go public.
The OECD recommended relaxing Main Board listing requirements so that companies with high growth potential can be listed “even if they are not currently profitable.”
Regulators were also urged to commit to a three-month IPO approval process and possibly implement a single filing platform for applications. Regulators were also urged to simplify the listing fee structure, introduce a maximum threshold on the initial listing fee and reduce stamp duty.
The OECD said a special program could be introduced to support the listing of large privately held companies and large state-owned enterprises, which could increase the attractiveness of the stock market.
The OECD has also recommended the introduction of more products and exchange-traded funds (ETF) to increase international investor interest.
It also noted that the bond market could become a new source of financing for companies through streamlined registration processes and improved transparency by local credit rating agencies.
“To encourage household participation, the government should seek to facilitate access to cheap and easy-to-connect digital platforms that enable small minimum investments,” the report said.
PLANNED REFORMS
Meanwhile, the PSE and the Securities and Exchange Commission (SEC) are implementing a number of reforms aimed at boosting market activity, such as global Philippine depositary receipts (GPDR) in the first quarter of 2025, and derivatives in the first quarter of 2026.
The SEC is also considering developing a futures market to expand options for investors.
The PSE also urges Congress to pass the proposed Capital Markets Efficiency Promotion Act, which aims to reduce trading costs and attract more investors. One of its provisions will reduce the share transaction tax from 0.6% to 0.1% on the sale of shares listed and traded on the PSE, which will increase liquidity in the local stock market.
The Philippine stock market lags behind its regional neighbors, with daily trading volumes significantly lower than Indonesia and Thailand.
“Reducing the share transaction tax from 0.6% to 0.1% is a good step as it can improve investor returns, trading volumes and bid-ask spreads,” Colet said.
“Market participants are also anticipating the introduction of derivatives, which could increase the appeal of our market to sophisticated investors seeking risk management products and return enhancement strategies,” he added.
AP Securities, Inc. Research head Alfred Benjamin R. Garcia called for further investor education on emerging market products such as the GPDR and derivatives.
“We hope they will make more of an effort to educate investors directly, rather than training the brokers and expecting them to pass the knowledge on to clients, as we saw with the launch of real estate investment trusts (REIT)” , he said. in a Viber message.
Mr Garcia said emerging products such as futures and derivatives are aimed at companies looking to hedge and manage their risks, as well as institutional investors.
“I don’t think futures and derivatives will gain much traction among retail investors, other than the more sophisticated investors,” he said.
Luna Securities, Inc. Research ofFIcer and market strategist Annika Gabrielle S. Angeles said in an email that efforts should be made to expand investment opportunities for Filipinos.
“SEC, PSE and its members should explore and enable partnerships with international companies to offer ETFs, cryptocurrencies, commodities and other globally accepted assets,” she said.
“With millions of Filipinos already trading digital assets internationally, their integration into local platforms can tap into this growing market while providing convenience, regulatory oversight and broader investment opportunities,” she added.
Ms Angeles added that a “proactive” Capital Market Development Council (CMDC) could support the growth of local capital markets. CMDC is a public-private sector body tasked with facilitating the development of the Philippine capital markets.
“Initial priorities include streamlining listing and reporting requirements through automated tools, redefining material information and rules for insiders, and using advanced data analytics to improve transparency and enforcement,” she said.
Ms. Angeles said the PSE should also downsize its board in favor of fractional trading to make investments more affordable and inclusive for Filipinos.
“Making P100 investable will make investing more affordable and inclusive, allowing more Filipinos to participate in the stock market and build wealth. This is in line with global trends where low-cost investment options and fractional trading have increased retail participation and market liquidity, as seen in markets such as Indonesia and the US,” she said.
“With more supply and easier access, greater local participation will naturally attract foreign investors and create more dynamic and inclusive markets. Relaxing regulations and lowering barriers to entry will improve liquidity and the availability of funds for investments, thereby increasing turnover and trading speed,” she added.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said in a Viber message that the market’s emerging products would help attract more local and foreign investors.
“The new initiatives will enable us to better align with international standards and global best practices… These will also help to better respond to the investment and hedging requirements of local and global investors as part of the further development of the local capital markets,” he says. added.
CHALLENGES
Meanwhile, Mr Colet said one of the biggest challenges facing public equity markets is the growth of private capital markets.
“Companies that could otherwise be listed on an exchange are increasingly able to tap private equity firms, alternative investment funds and other institutions for liquidity without much regulatory burden,” he said.
“At the same time, many equity investors are concerned about the fairness of our domestic market, for example in situations where companies can reduce their stock price or where insider and related party transactions are not properly monitored,” he added.
Mr Garcia said recently launched products such as short selling are still not showing demand due to strict requirements.
The PSE launched short selling in November 2023, five years after issuing the revised trading strategy guidelines.
“For the new products, we have seen before in short selling that our regulators tend to set too strict requirements, which deters participation in the new products,” he said.
“Unless they can make GPDRs, futures and derivatives more accessible, we don’t think these new products would be attractive,” he added.