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Asset Management / Wealth Management
Retail ratchets up as Philippine index hits record
Retail drives growth of institutional funds and market volume
Daniel Yu 1 Nov 2017

It’s the ber season in the Philippines. How to tell? Christmas carols are blaring incessantly in every indoor venue and malls have extended shopping hours to 11pm. If it was unbearable before, the traffic, especially around commercial centres, is unspeakable. Still, it is the best display of the power of the Filipino consumers driving the country to achieve over 6% growth in the past years, despite the clogged thoroughfares of city centres.

Of late, there are telltale signs that these consumers are starting to broaden their interests into investing. One indicator is the PSE index, the gauge of the Philippine stock market, which has hovered at an all-time high of close to 8,500 points. This is despite net selling by foreign investors that has contributed to a weaker peso. In year's past, the buying behaviour of foreign investors has a profound impact on the direction of the index.

“We have reached a tipping point,” suggests one broker with a foreign house. “This is the year that you are starting to see more retail investors participating in the stock market.” She adds that local investors are becoming sophisticated and are up-to-date on key developments.

The Philippines’ demographic composition is behind the uptick in retail investing. “The millennials are more investment hungry,” shares Alejandro Yu, CEO of RS Lim & Co, a local stockbroker and a director of the Philippine Stock Exchange (PSE). “They are savvier, as information is available and they are more aware of equities as a form of investment.”

Alejandro Yu, CEO of RS Lim & Co, a local stockbroker and a director of the Philippine Stock Exchange (PSE).

Yu says that while the biggest contributor to the revenue pie of the stock exchange is usually from initial public offerings, the other main contributor is from brokerages, especially those that have gone online, providing trading access to old and new clients.5

“If you peel underneath the online trading activity, 80% consists of younger investors – those 35 years old and below,” he says. “They may not make big investments of 500,000 pesos (US$9,700) to one million pesos and up, but they invest 50,000 pesos to 100,000 pesos. This is good for a market such as the Philippines.”

PSE president and CEO Ramon Monzon agrees. "Online trading is the new growth segment," he says. A new front-end system is being installed to facilitate online trading, he indicates, to handle the increased activity in the past two years. Data from the PSE, Monzon says, show that there are now more than 780,000 stock trading accounts. "On a year-on-year basis, online trading accounts are growing by 25% to 30%." Adds Yu: “If you look at new accounts opened, more than 50% are online accounts.”

Ramon Monzon, PSE president and CEO

This investing sense has been helped along by the PSE and the asset management industry, which has been holding investment seminars across the country to encourage potential investors. Philam Asset Management Inc (Pami), a unit of the AIA group with US$1.2 billion of assets under management, recently launched a social media campaign to encourage investing for the future by lowering the minimum requirement for its stable of funds to 1,000 pesos.

“For five days, we saw the nannies, security guards, owners of mom-and-pop shops investing via online channels and branches – some going to the extent of smashing their piggy banks just to invest,” shares Michelle Villanueva, head of products and marketing at Pami. “To date, we have even attracted pilots from the Philippine Air Force; it is really quite heartwarming.”

Michelle Villanueva, head of products and marketing at Pami

Pami’s experience mirrors the flow of funds into other asset managers. The broker at the foreign house notes that retail money is becoming more important for institutional funds such as Pami. “It used to be large accounts that were driving the growth of the institutional funds. Today we can say that retail is driving the growth of institutional funds and the growth in the market volume.”

The top five foreign brokers, which service foreign funds, used to represent over 50% of the market trading activity, he adds. “Their share now has declined to the mid-40% as domestic funds take a larger stake.” Local investors are also behind IPOs such as Chelsea Logistics Holdings, which raised 5.84 billion pesos in August.

The reason for foreign investors' reticence to invest is understandable. On a relative basis, the Philippine trades at a price-earnings multiple of over 20 times, which is higher than regional peers such as Thailand and Malaysia. While the country's macroeconomic fundamentals look good, foreign investors are waiting for the passage of the tax reform plan and progress on the infrastructure front.

Some brokers worry that while the market is moving higher, it is doing so without much volume and trading conviction. Investors are also starved of choices with most pushing the valuation of conglomerates stocks ever higher as these are the only liquid trades. With only 20 counters – consisting of the top conglomerates – accounting for 80% of the trading activity out of 269 stocks, the exchange is in serious need to deepen and broaden its offerings.

How can the Philippines build a better capital market? What are the challenges it faces and the opportunities ahead as the country witness an uptick in investors' interest? Hear from Finance Secretary Carlos Dominguez III, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr, PSE President Ramon Monzon and a bevy of distinguished speakers at The Asset 12th Philippine Forum at the Conrad in Manila on the 24 of October 2017. Find out more about this gathering by clicking here.

Makati skyline photo by Jonnhydejesus/Wikimedia

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