Local stocks not reflecting robust economy

Philippine stocks, while often used as a benchmark for the movement of the local economy, have apparently not yet reached the right combined market capitalization to represent the country’s gross domestic product (GDP).

BPI Capital chief operating officer Reginaldo Cariaso said while the economy and the local stock market have been performing generally better, the latter has not grown big enough to represent the country’s GDP.

“There are about 260 listed companies in the Philippines. If you compare its [combined] market capitalization, it’s very low compared to the GDP, relative to other developed markets,” Cariaso said.

“Vietnam has 900 listed companies. There are still a lot of companies not yet listed and the index itself hasn’t really captured the full economy of the Philippines. The index is a benchmark but it’s probably not the most accurate benchmark in terms of what Philippine companies are truly capable of,” he added.

For instance, he cited that the 70 percent of GDP is consumption but if you’re going to look at the number of consumer companies listed in the Philippine Stock Exchange, it’s still very low.

During the first quarter of the year, the country’s economy got the bulk of its 5.2- GDP growth from consumer spending, which contributed 3.7-percentage points.

“The index is under-representing the real growth of the Philippines. There are a lot of potentials for companies that are not listed yet,” Cariaso said.

Overseas, US stocks represent approximately 30 percent of the total value of global markets.

A data provided by Bureau of Economic Analysis in the US showed that the profits of publicly-held companies comprise about more than half of all business profits earned in the US, while the remaining portion of the economy is represented through private firms.

This could mean that Wall Street stocks could be a legit reflection of the economic activity in the US.

Cariaso also pointed out that there’s a lot of opportunities for small and medium enterprise (SME) companies in the capital market.

According to him, once tapped to enter the market, the growing number of SMEs could fill the gap in terms of the listed firms’ representation of the Philippine economy.

First Metro Investments Corp., one of the major investment firms in the country, has earlier shifted its focus on emerging SMEs rather than those that are already big in terms of getting more initial public offering deals.

In the Philippine context, FMIC president Roberto Juanchito Dispo explained that small IPOs are more doable, easily absorbable by the market, and easy to turnaround in the end market.

“It is also consistent with our advocacy to introduce new names in the market. And when you say new capital market names, these are emerging SMEs, rather than go for matured big companies,” Dispo said.

“We are shifting our strategy. We are identifying SMEs that our very profitable that can be easily listed at the exchange,” he added.