On presidential visit to PSE
On March 6, 2012, President Aquino visited the Philippine Stock Exchange (PSE) to celebrate with the stock market community the breaching of the 5,000-point level by the stock market’s main index (PSEi).
The President has been apparently monitoring the performance of the stock market, mentioning its ascent during the recent EDSA anniversary celebration to drive home the point that there is a surge of investor confidence in the country under his administration.
The contribution of the current administration to renewing investor confidence cannot be underestimated. Good public governance is high on the agenda of the President and expectations to curb corruption in government run high nowadays.
In the same vein, the role of the stock market in economic growth should not be underestimated. The stock market is not only a barometer of the performance of the country but more importantly, a potent venue for capital raising and investment that generates wealth, private enterprise growth and job opportunities.
Stock market setbacks
But while it is true that the stock market has been posting record highs in recent months, the stock market is still reeling from numerous setbacks resulting from this administration’s lack of honest-to-goodness support for the capital markets.
For example, Congress worked so hard to pass the Real Estate Investment Trust Act (REITA) that finally saw the light of day in December 2009.
For years, the Philippines had no share whatsoever in the global REIT industry which, based on an Ernst & Young report, had more than $560 billion worth of investments when the law came into effect in 2009.
The international business community expected much from the new law. Global investment giant UBS described it as “a major leap forward” and a “long-awaited catalyst that could push the Philippine market and property sector to new highs.”
Another global giant, Macquarie, described the new investment product as providing investors “yields that exceed those of traditional investments,” which “could act as an important hedge in an inflationary environment.”
J.P. Morgan, an avid supporter of this administration in terms of job generation, described it as a potent tool that “generates capital for expansion.”
However, even as Congress spent years of hard work on this piece of legislation, the executive branch has embargoed or impounded it by imposing requirements not found in the law.
For one, new tax regulations impose a 12 percent VAT on the transfer of assets to the REITs, contrary to long and accepted practice prior to the enactment of the new law.
Likewise, the Securities and Exchange Commission raised the minimum public ownership (MPO) requirement to as high as 67 percent on the third year of a REIT company.
Worse, the tax regulations require REIT companies to escrow their tax incentives to secure their compliance with the higher MPO requirement.
As a result, big and medium-sized property firms have shelved their plans to list REITs, thereby putting into question the credibility of the Philippines in the international business community. The country was consequently deprived of an estimated $1.1 billion in new investments that will come in during the first year of the REIT system. Another landmark measure that has yet to be fully implemented is the Personal Equity and Retirement Account Act (PERAA), which was enacted back in 2008.
Congress envisioned the PERAA not only to encourage savings but also help develop our capital markets. It took the executive branch almost three years to issue the tax regulations implementing the law; worse, the capital market is still waiting for the separate revenue memorandum defining the guidelines and procedures for reporting PERA transactions to the BIR.
This is not to mention the fact that the government has threatened to impose a higher tax rate for stock market transactions involving shares of stock of listed companies that do not meet the minimum public ownership requirement prescribed by the PSE. Aside from legalities, investors have asked why they should be penalized for the fault of the listed company. Although there appears to be light at the end of the tunnel, there is yet no official resolution of the matter from the BIR; it continues to be a sword of Damocles hanging over the heads of the investing public.
A Dom Perignon toast?
My two-cents worth as former PSE President: Mr. President, don’t just pay lip service to the stock market.
Direct your lieutenants to be truly supportive of the market and, perhaps, your next visit to the stock exchange will be punctuated by a market advance, regardless of the performance of foreign markets.
Better still, Mr. President, with concrete support to the stock market, coupled by sound market fundamentals and sustained investor confidence, you will in no time see the main Philippine stock market index surpass the 6,000-point level.
Surely, Mr. President, you can then demand from my friends in the PSE a Dom Perignon toast as you ring the opening bell to celebrate the feat.
(The author is the former CEO of the PSE and is now co-managing partner of Angara Concepcion Regala & Cruz Law Offices (ACCRALAW). He may be contacted through [email protected].)
