Let’s talk capital market (Part 2)

In the previous column, we talked about the dearth of securities issues as an obstacle to capital market development. On the other hand, there is a dearth of both investment funds and investors moving into the capital market.

The lack of long-term investible funds

THE capital market is about longterm investments where long-term financing needs of corporates need to be matched by investors with longterm horizons. The supplier of funds would normally be Pension Funds which are managed for retirement purposes.

Unfortunately, the Philippines has a most inadequate pension system, embarrassingly ranked very low in a global comparison scale. This is widely-acknowledged and recently has been shouted out in congress by the chairman of its Ways and Means committee. This is why the reform of our pension system is top priority in the agenda of the capital Market Development council (cmdc).

Accordingly, the “capital Market Development act” has been proposed in congress (House Bill 9343), has been deliberated upon, hearings conducted and approved in May 2021 and sent to the Senate on June 2, 2021, where it was caught up in the change of administration. it is now being deliberated upon by the Senate. it is instructive to quote a portion of its Declaration of Policy:

“The State also acknowledges that expanding the capital market necessitates the development of a wide institutional investor base that could best be achieved by adopting a robust pension fund system. The State recognizes that the current system has long been due for reform and as old age income support is now among the major social and economic challenges facing many nations, including the Philippines, it is imperative to institute the reforms in the country’s retirement and pension system.”

The passage of this House bill in its substantial form through the Senate, to become finally a law, is a cornerstone for our capital market development.

The need to expand the individual investor base

THE Philippine Dealing & exchange corp. (Pdex) reports that as of november 2022, the number of investor accounts consisted of 48,230 institutional investors holding the equivalent of P755 billion of debt paper investments and 265,644 individual investors holding the equivalent of P581 billion in investments.

The Philippine Stock exchange inc. reports its number of investor accounts as 1,620,017 of which 98.1 percent are retail accounts and 1.9 percent are institutional accounts.

Of the total, 72 percent are online accounts.

The Shareholders’ association of the Philippines inc. has noted, however, that there is an “investing Revolution… and the Filipino investor is radically changing.” The investor promotion and protection advocacy group describes the new Filipino investor as:

■ Young; about 25. 69 percent of retail accounts are held by investors less than 45 years old while 35 percent are held by those 18-years-old to 29-years-old.

■ Having an average income of P500,000 a year for about 73 percent of online retail accounts. about 86 percent are salaried or self-employed.

■ Digitally-savvy: they have limited knowledge of investments but actively research on their own via social media platforms.

The issue that calls attention is how to accelerate this expansion of the investor base and how to connect these investors to be active in the capital market which leads us to the next key issue.

Acceleration of digitalization in market transaction processes

Digitalization makes for efficiency and cost-effectiveness and while this is acknowledged, more needs to be done.

Then we can join Sharephil in its advocacy to “Support the emerging digital-savvy mass affluent class in the Philippines by 2030,” targeting the following: doubling the gross domestic product per capita to $6,500; increasing the number of established and emerging affluent families by 1.8-times to 48 million; and, growing the aff luent class population by 1.3x to 34 million. (Boston consulting Group)

The need for more purposeful investor education

BY this we mean a consolidated collective effort by all stakeholders. There are commendable efforts by regulators and the Finex academy, some investment houses and industry associations; but these are scattered.

There are various categories of people who need different kinds of investor education: from the non-investor who requires to be made aware; to the newly initiated; to the fairly experienced; to the adventurer with developed risk appetite. Then there is the category of capital market professionals who need the specialized training to assist individual investors.

The Sharephil pointed out that “79 percent of working age people actively seek information to guide financial decisions.”

Certainly, the cmdc should keep this matter in its top agenda, to promote sustainable investing habits among Filipinos. (To be continued)

Santiago Dumlao is the Secretary General of the Association of Credit Rating Agencies in Asia and chairman of the market governance board and market policy committee of the Philippine Dealing & Exchange Corp. His views do not necessarily reflect those of the Businessmirror’s.