PHL must further deepen capital markets
THE PHILIPPINES needs to further deepen its capital markets as relying heavily on banks as the economy’s means of financial intermediation is not sustainable, the Bangko Sentral ng Pilipinas (BSP) chief said.
“Our heavy reliance on bank financing works — until it doesn’t,” BSP Governor Eli M. Remolona, Jr. said during his presentation at the 119th meeting of Capital Market Development Council last week.
The country should “open the corporate bond market to single-A and triple-B borrowers” as all bonds in the Philippine corporate bond market are triple-A or double-A, he said.
The Philippine bond market’s growth picked up in the third quarter amid more issuances from the government and the central bank, an Asian Development Bank (ADB) report released last month showed.
The local currency bond market grew by 1.8% quarter on quarter to P11.66 trillion or $210 billion in the July-September period, ADB’s Asia Bond Monitor report showed, faster than the 1.3% expansion seen in the second quarter. Year on year, the bond market grew by 6.5%.
Outstanding corporate bonds contracted by 2.4% quarter on quarter to P1.6 trillion amid reduced issuances.
Corporate bond issuance declined by 38.8% quarter on quarter and 68.5% year on year, the ADB report showed.
Firms’ disclosure of material information should be prompt to improve market activity and deter insider trading, Mr. Remolona added.
“Sometimes, a listed firm’s stock price shows no reaction to the public release of significant news. This would suggest that insiders had already traded on the news before its release,” he said.
The BSP chief cited a study from Utpal Bhattacharya, a finance professor at the Hong Kong University of Science and Technology, that said 87 countries have insider trading laws, but only 38 economies were found to be enforcing those laws.
The cost of equity financing was also found to be significantly lower in those 38 countries, he said.
Moreover, Mr. Remolona said he hopes the Philippines could join the global shift to equity index and emerging market bond exchange traded funds (ETFs).
“Philippine markets are not included in any of the major global equity ETFs or emerging market bond ETFs,” he said.
Currently, the three largest index fund managers are BlackRock, State Street Global Advisors, and the Vanguard Group.
Due to the popularity of index funds and ETFs, these asset managers are now some of the biggest owners of US public companies. Together, they have the largest shareholdings in 88% of S&P 500 firms.
Meanwhile, Mr. Remolona said the top three emerging market bond ETFs are JPMorgan, Barclays, and Invesco. — K.B. Ta-asan
