A stock investor’s Christmas list

With three trading days left before the new year, investors are becoming less hopeful that the much awaited Santa Claus rally will materialize. However, if Santa could grant wishes, here are some of the things that a stock investor like me would ask for.

The end of the US-China ‍ trade war

Increasing hopes that the United States and China would come up with a trade deal was one of the reasons why the Philippine stock market performed strongly in the first quarter of 2019. On the other hand, the United States’ decision in May to resume with tariff increases and impose even more tariffs on Chinese goods was one of the main reasons why the Philippine stock market’s strong performance was not sustained. The worsening trade tension between the two countries was also the main reason why a lot of companies held back on their investments, which hurt global economic growth. Consequently, the end of the US-China trade war should be good as it would boost investor sentiment and encourage companies to pursue their expansion plans. This, in turn, should result in the stronger performance of the stock market.

The government, Manila Water and Maynilad come up with a mutually acceptable revised water concession agreement

Uncertainty on how the new water concession agreement would look like and whether or not it will allow the water concessionaires to earn a reasonable return is causing a lot of investors, both local and foreign, to stay away from the Philippine stock market. Assuming that the government makes unreasonable demands, forcing the water concessionaires to walk away, appetite for all Philippine investments aside from stocks will deteriorate, causing interest rates to go up and the peso to depreciate. This is not good since the government needs to increase its borrowings to fund its aggressive infrastructure spending plan. The ability of the Philippines to attract foreign investments will also be hurt, negatively affecting economic growth.

More IPOs

The Philippines’ share in the MSCI Index, which is widely followed by investors globally, has slowly been shrinking during the past few years as the size of our stock market has hardly grown. One way to reverse this trend is for more companies to list in the Philippine Stock Exchange as this would help grow the size of our market, allowing us to accommodate more investors and larger funds. A growing number of listed stocks should also make the stock market more representative of the economy and give investors more options on what companies to buy, making the local stock market more attractive.

More Filipinos invest‍ in the stock market

Despite the small size of the local stock market, foreign investors account for more than half of the Philippine Stock Exchange’s value turnover as less than 1 percent of Filipinos invest in the stock market. As such, the local stock market is very sensitive to foreign funds that sometimes leave the country for reasons that have nothing to do with our country’s fundamentals. The large share of foreign investors also makes it difficult for smaller companies to trade at good valuations, even if these companies generate strong earnings, as foreign investors usually focus on more liquid and larger capitalized companies. If more Filipinos invest, the local stock market should become less vulnerable to foreign fund flows. Profitable companies will also be rewarded with better valuations even if they are still small, making it easier for more companies to tap the stock market for growth. INQ