Funds raised through PSE seen to hit P200B

The Philippine Stock Exchange expects capital raising to reach P200 billion this year, replicating last year’s record-high level, as good valuations are seen to encourage more companies to raise fresh equity.

To date, seven to 10 companies are scheduled to conduct either an initial public offering or listing by introduction, PSE president Hans Sicat said during the Philippine Investment Forum on Tuesday.

Sicat also sees local money to continue dominating stock market turnover this year.

Last year, local investors accounted for 55 percent of PSE trades.

This ratio dipped to around 51 percent earlier this year due to the surge of foreign money, Sicat told reporters.

“We’ll continue to see Philippine money becoming the predominant player as we open up. We’ll be launching by the end of the month our online service bureau project. That will help retail investors come in,” Sicat said.

The program, called Online Service Bureau, seeks to take advantage of the Internet and the continuous growth of online transactions by allowing investors to place their orders to brokers online. This program aims to use technology to widen investor base without the broker-dealers having to shell out a lot of money to develop their own solution.

To date, most trades in the country are still done through phone calls or physical interaction with stockbrokers or agents. About 10 to 15 trading participants, out of 133 active brokerage houses, have developed their proprietary online trading platform.

Asked about Singapore Exchange Ltd.’s plan to introduce Philippine Stock Exchange index (PSEi) futures, Sicat said this was a “good” move.  Asked why PSE itself won’t introduce PSEi futures, he said there were a lot of products that the local bourse could introduce locally but still lacked the fundamental basis to do so.

“On futures, the market still does not do stock borrowing efficiently and you can’t introduce a first-step derivative product that the market is not using yet. This year, we’re hoping that stock borrowing products will be used more,” Sicat said.

A futures contract allows investors to bet on the direction of an underlying commodity, currency or index in a formal exchange, allowing hedgers and speculators to trade.

In securities borrowing and lending, stocks from an investor’s portfolio can be lent to a borrower who needs the stocks for settlement obligations to support trading strategies. It involves the physical transfer of shares to the borrower, with the lender retaining certain rights accruing to the shares of stocks lent.

What the PSE can do is to set the framework that will allow trading participants to use them.

“You can lead the horse to water but they have to drink it themselves,” he said.

In 2012, Sicat estimated that stock borrowing transactions amounted to only P1 billion which, he noted, was “very small” considering that in many exchanges, stock borrowing accounted for 10 to 20 percent of total volume.

“They are now using it mainly for fail trade management. People don’t use it yet efficiently to hedge positions,” he said. “The market has to graduate to that and we’re hoping that ETF (exchange traded funds) will eventually contribute to that activity,” he said.

An ETF offers public investors an undivided interest in a pool of securities and other assets. It is similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on an exchange through a broker or dealer.

Another issue, he said, would be to ensure sufficient supply of stocks to borrow. “We’re hoping that more of the players, including retirement funds, will lend a portion of their stocks for market activity. “