Now, everyone wants out and away from our local exchange, turning patriots into paraplegics as they are left holding the bag of what is seen to be more of a value trap than an undervalued opportunity, as liquidity dried up faster than our washed laundry.
Real economy and growth
In 2016, the Philippine Stock Exchange’s average daily turnover, excluding block sales, was P7.1 billion.This dropped to P5.9 billion this year, a 17.1 percent decline.
Over the last 10 years, the average was P6.2 billion, versus P4.9 billion over the last 3 years, a 19.3 percent drop.
In contrast, Vietnam’s Ho Chi Minh Stock Exchange surged from $89.8 million in 2016 to $927.7 million year to date, nearly a tenfold increase.
This somehow mirrors broader economic trends too.
Twenty-five years ago, the Philippines’ GDP per capita doubled Vietnam’s.
By 2018, however, Vietnam overtook the Philippines and is now bigger by 18.4 percent in 2024.
While the Efficient Market Hypothesis is not the be-all-end-all of economic analysis, these parallels suggest that stock market turnover and economic growth often move in tandem.
Though our economy appears “stable,” the scale of corruption in the country has siphoned hefty sums that could have exponentially grown the economy.
These are funds that could have built lasting infrastructure, improved public education, and eased the healthcare burdens of the masses, leaving market sentiment dampened, as reflected in the PSEi’s sluggish performance.
The complexities
The steady dips in liquidity continue to perplex the market, reflecting deeper structural issues that simple fixes alone may not resolve.
Some industry veterans and seasoned traders have floated ideas on ways to address this.
These range from additional listings or the formation of new subsectors, to mandating PERA participation or pushing our sovereign fund to invest in the market, each with its own benefits and flaws.
Even though these are viable options, there is no guarantee that a combination of all these factors would translate into significantly better market participation.
Least attractive
Our least favored solution would be forcing Maharlika to invest in the PSE.
Quick fixes like these only exacerbate the liquidity issue by handing it to another government-funded institution.
Regulators should refrain from these short-sighted measures at all costs.
Next would be the formation of new subsectors, given the Philippines’ lack of mature industries to invest in, especially manufacturing, which received the least positive reforms in favor of the nationwide BPO industry expansion that coincidentally leverages our highly English-proficient workforce.
Add or remove?
Arguments can be made that increasing or decreasing the number of publicly listed companies can positively impact liquidity.
New listings inherently inject liquidity into the market as underwriters actively sell shares and speculators are encouraged to participate when there are more options to trade.
On the other hand, trimming listings would concentrate trading activity, making quality incumbents more liquid.
In our view, additional listings, with reservations, are the way to go.
Including quality companies in the investable universe is clearly superior to adding listings merely for the sake of having more options.
That said, concentrating liquidity is not necessarily negative.
In the U.S. market, the so-called “Magnificent 7” account for about 37.0 percent of total market capitalization.
In Vietnam, just 74 of 694 listed firms make up 87.8 percent of market capitalization, reinforcing the argument for reducing the number of listings.
Mandatory
Mandating an extra contribution to build an equity retirement fund sounds painful, given that many barely live on their daily wages.
Still, this may be the most viable approach, provided it is funded by reallocating a portion of tax collections rather than imposing an additional fee.
If the government truly champions financial inclusion, it must bear the cost instead of forcing more charges onto the public.
What gives?
Propping up liquidity has been the biggest challenge this exchange has faced post-pandemic, and even the proposed solutions raise more questions than answers.
Would local participants care about new sectors or innovative companies?
Would speculators consistently participate in fresh listings?
Personally, I am open to almost anything except local tech company listings, as we are light years behind this trend.
Even so, the novelty would likely attract speculators.
All things considered, we face a classic “chicken-and-egg” dilemma.
Our market’s undervaluation and tight liquidity may each be driving the other, yet it remains unclear which is the root cause.
The people’s verdict, however, is clear: a true revaluation trigger comes from holding the most corrupt accountable by sending them to jail.
Financial market recommendations and comments on InsiderPH News belong solely to the analysts and institutions making them. They do not represent buy, sell or hold recommendations of InsiderPH News. Investments held by analysts or institutions may influence their recommendations. Investors should conduct their own research and carefully evaluate all relevant market information before making investment decisions. As always, the past performance of any investment does not guarantee its price appreciation in the future.
