What’s wrong with PSE?

Business Mirror - - OPINION - John Man­gun E-mail me at man­gun@gmail.com. Visit my web site at www.man­gunon­mar­kets.com. Fol­low me on Twit­ter @man­gunon­mar­kets. PSE stock-mar­ket in­for­ma­tion and tech­ni­cal anal­y­sis tools pro­vided by the COL Fi­nan­cial Group Inc.

THE first time I vis­ited the then-Makati Stock Ex­change in 1989, I was struck by how quiet was the trad­ing floor. The other stock mar­kets that I had been to were noisy with ac­tiv­ity. The only com­mo­tion here was in the line of floor traders and clerks wait­ing to get food from the can­teen in the rear of the room.

The bid and ask price post­ings from the var­i­ous stock­bro­kers were writ­ten in chalk on a black­board, as run­ners came for­ward from the trad­ing sta­tions. About three years be­fore, the Lon­don Stock Ex­change had ef­fec­tively closed its trad­ing floor, as the trades were now be­ing done elec­tron­i­cally through com­put­ers. The Philip­pine stock mar­ket was be­hind the times then as it is now.

Talk­ing to mem­bers of the Philip­pine Stock Ex­change (PSE) board of gov­er­nors, there was a sense of op­ti­mism, al­though lit­tle did any­one there know that in a few months a coup at­tempt against the govern­ment would shat­ter all the good pre­dic­tions.

Over the last nearly three decades, the PSE has bounced from the ex­tremes of con­fi­dence and gloom rather fre­quently, in­clud­ing dur­ing the Asian fi­nan­cial cri­sis, the trad­ing scan­dals of the pres­i­den­tial ad­min­is­tra­tion of Joseph Estrada, nat­u­ral dis­as­ters, more coup at­tempts, and the worst global fi­nan­cial sit­u­a­tion since the 1930s.

Like the Philip­pines, the PSE has never re­al­ized its full po­ten­tial. Pub­lic par­tic­i­pa­tion as a per­cent­age of the pop­u­la­tion is not much higher to­day than in 1989—at less than 1 per­cent. How­ever, the per­cent­age is not much bet­ter in Thai­land, at less than 2 per­cent, and both a far cry from the 40 per­cent to 50 per­cent

The PSE has never quite evolved to use—for bet­ter or worse —mod­ern trad­ing habits like trad­ing with bor­rowed money on mar­gin and “short sell­ing,” where you “sell high and then buy low.” The in­vest­ment ve­hi­cles are al­most com­pletely un­changed since the days of the black­board.

in other coun­tries.

Noth­ing much else has changed, ex­cept that the PSE now has fully com­put­er­ized trad­ing. The PSE has al­ways been ac­cused of be­ing an “Old Boy’s Club” but, closer to the truth is that, the PSE is just an “Old Club.”

The PSE has never quite evolved to use—for bet­ter or worse—mod­ern trad­ing habits like trad­ing with bor­rowed money on mar­gin and “short sell­ing,” where you “sell high and then buy low.” The in­vest­ment ve­hi­cles are al­most com­pletely un­changed since the days of the black­board. The PSE mem­bers and lead­ers have tried to bring the stock mar­ket into the 21st cen­tury with lit­tle suc­cess, and it is not their fault, be­cause they have dili­gently tried.

Per­haps, in no other place on earth does the Ex­ec­u­tive branch of govern­ment take so much credit for stock-mar­ket per­for­mance to the up­side while do­ing al­most noth­ing to en­hance the na­tion’s equity mar­ket.

For ex­am­ple, the Real Es­tate In­vest­ment Trust (REIT) has been a reg­u­lar in­vest­ment around the world since the 1960s and is now avail­able from Ghana to Bul­garia. In the re­gion, it is com­mon in Sin­ga­pore, Malaysia and Thai­land but, of course, not in the Philip­pines al­though a law was passed to reg­u­late REITs in 2009.

How­ever, be­cause of the in­abil­ity of Congress, the Se­cu­ri­ties and Ex­change Com­mis­sion and, par­tic­u­larly, the Bureau of In­ter­nal Rev­enue to fig­ure out a fair, sen­si­ble and ra­tio­nal tax­a­tion scheme, the Philip­pine REIT lies dead on ar­rival.

There is re­ally noth­ing wrong with the PSE that could not be reme­died if the govern­ment ever de­cided to bring it into the 21st cen­tury. But then again, that is true of many govern­ment ef­forts.

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