What’s wrong with PSE?
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.