IT’S MORE FUN AT PSE: The Philippine Stock Exchange and the National Economy

 

By Aaron Salvan, Dino Saplala, and Carlo Sarino

     Believe it or not, you need to know stock exchange. You might be wondering why you should be happy about the performance of the Philippine stock market, whose main index has been hitting many record highs this year. President Aquino himself is confidenta that it will even reach 6,000 soon.

Let us go back to our question. Should you care about the performance of the stock market even if you haven’t even tried investing yet? You should! Let’s consider some examples to see why. Did you know that government agencies like the Social Security System (SSS) and the Government Service Insurance System (GSIS) have investments in the stock market? Aside from the government, did you know that the Catholic Churchf also invests in the stock market? Since you are a stakeholder in activities of these institutions, you should know what’s at stake when their investments perform well.

If you are among the ordinary Juans who are not fans of investing in the stock market (or are not even aware of it), you should also consider investing as well. Do you have an impression that investing in the market is just pure gambling non-sense that only millionaires can do? Just finish reading this article and let us check your impression again later. For now, let us take a look at the corporate organization in charge of regulating the stock market.

A brief history of the Philippine Stock Exchange, Inc.c

     The Philippine Stock Exchange (PSE) began from two separate stock exchanges, the Manila Stock Exchange, Inc (MSE) and the Makati Stock Exchange, Inc (MkSE). The MSE was started by W. Eric Little, Gordon W. Mackay, John J. Russell, Frank W. Wakefield and W.P.G. Elliot in 1927. On the other hand, the MkSE was started in 1963 by Hermenegildo B. Reyes, Bernard Gaberman, Eduardo Ortigas, Aristeo Lat and Miguel Campos.

The present Philippine Stock Exchange was born from a merger of the MSE and MkSE in 1992. The PSE was incorporated by Robert Coyiuto, Jr., Victor Say Hipek, Eduardo C. Lim, Juan B. Francisco and Cesar E.A. Virata. From these five businessmen who incorporated the PSE in 1992, the PSE catered to over 500,000 investor accounts in 2011. Currently, the PSE has two trading floors (Ortigas and Ayala Avenue). By 2016 or 2017, the PSE is also set to move to its new headquarters at the Bonifacio Global City in Taguig.g

TRADING AT THE AMPHITHEATRE: Stockbrokers are in the middle of a trading session at the Ortigas trading floor as stock investing seminar participants on look from the PSE board room. (Source: Christian Saplala)

Working for PSE: An insider’s account

Mr. Jay G. Peñaflor, Assistant Head of PSE’s Market Education Department, says that employment at the Philippine Stock Exchange is one of the best, due to the sense of prestige an employee receives. “May prestige, and aside from that, in terms of compensation naman, okay ano. [It is] better than banks, better than any other financial service companies,” he adds.

In addition, Peñaflor invites those looking for a challenge to consider working for the PSE, because employees there are trained to be well-versed in the financial world. Employees are expected to know about technical aspect of, as well as conversant with, the stock markets. They must also know about all the listed companies, and continuously be updated with the daily news.

He also takes note of the good relations among people working for the stock exchange. “[We are] very small organization. Well, we have 120,150 employees, so in terms of camaraderie, okay, parang family,” Mr. Peñaflor explains.

Another benefit for working in the PSE would be the learning experiences the employees receive. Training is not only limited to stocks, but also electronically traded funds (ETFs), derivatives, etc. “I think isa iyan sa advantages of being an employee of the stock exchange. You’ll get to receive trainings which you can’t get from other companies.”

The stock exchange as an institution

     The PSE provides the trading facilities, and systems, that ensure fair, transparent, and organized buying and selling of securities. More importantly, the Philippine Stock Exchange is the regulatory body, along with the Securities and Exchange Commission (SEC).

“We put up rules and regulations that will ensure a fair buying and selling of securities. We put up safeguards that will protect the investing public and rules that brokers should comply with. Dapat protektado lagi ‘yung investing public,” Peñaflor stresses.

To protect the investing public, Peñaflor mentiones the presence of insurance funds, such as the Securities Investors Protection Fund (SIPF), which compensates customers who may have suffered losses from their transactions from rogue traders. They also police against market manipulators, along with the Capital Market Integrity Corporation of the Philippines.

HOME TOWER: Ayala Tower One currently houses the PSE's Ayala trading floor and its main offices, as well as offices of several other corporations. (Source: Marga de Chavez)

According to Luis F. Dumlao, PhD, Chairperson of the Ateneo Economics Department, the PSE has relatively been successful in recent years in protecting the investing public by maintaining market efficiency. In economic terms, a market is efficient if all relevant past, present, and expected information are easily available to all investors and prices reflect these information. In short, an efficient market creates a level playing field for all investors concerned.

Dumlao elaborates, “In the strict word of economic efficiency, the Philippine Stock Exchange is efficient. That means if there are speculations, it is usually the exemption and not the rule.” He also stated that the last time there has been a major attack or speculation on the stock market was around 1999 (the BW Resources Scandal which was about 13 years ago). “So one would say the past 10 years, it’s not perfect but it’s relatively efficient,” he added.

So, what’s in it for the ordinary Filipino?

     Should Filipinos care about the stock market? A good stock market performance sends a positive signal to potential investors regarding the business climate in the country. In the case of shareholders and Filipinos who work for corporations listed in the stock market, an improvement in the performance of these firms in the market may indicate an improvement in the firms’ profitability. In the long run, these may also indicate an improvement in the firms’ capabilities to pay more for their workers and shareholders.

What about the non-investing public and other ordinary Filipinos? As mentioned in the introduction to this article, the Catholic Church invests part of its money in the stock market to be able to finance its activities, including its outreach programs. Aside from church activities, retirement funds in the SSS and GSIS are also related to the performance of the stock market.

According to Dumlao, the SSS (for the private sector) and GSIS (for the government workers), imposes social security tax deductions on salaries. He then explains, “Even if they [ordinary people] don’t think that they’re not investing, the SSS and the GSIS put a lot of their money in the stock market so if the stock market performs well, then their retirement funds through SSS [and] GSIS will do well.”

The participation of GSIS and SSS in the stock market, Dumlao asserts, “means that [the stock exchange] has an effect on the wealth of the regular employee as much as that employee does not directly invest in the stock market.”

Dumlao also described a bidirectional relationship between investing in the market and having the capability to do so. He explained, “In rich countries people invest precisely because they are rich. And then so there’s again this bidirectional thing about investing: People are rich. Because they’re rich, they are able to invest. They’re able to invest, then investing increases. Investing increases, output would tend to increase. [National] income would tend to increase. So it’s one (that) causes the other.”

He also stressed the importance of savings in addition to increasing incomes. He added, “There’s got to be some sort of a (government) regulation that would encourage people to save or policies that would make savings more advantageous for people.” That includes, of course, engaging in investments.

Making money through stocks

     So how do you make money in the stock market? There are two main ways: one is through the changes in the price of a stock. For example, if a stock was bought yesterday at PHP100 and it now costs PHP110, an investor can opt to sell the stock in order to realize a gain of PHP10.e However, profiting this way also involves risks as the price of a stock may also decrease.

The second way of gaining in the stock market is through dividends. Dividends are earnings which won’t be reinvested back in the company. Firms declare dividends for each share of stock from time to time. Firms may also declare stock dividends instead, which are additional stocks for current stockholders at no cost.

RECORD HIGHS: The PSE Composite Index (PSEi), which has been breaking records many times this year, tracks the performance of 30 companies which best represent overall price movements in the market. (source - www.pse.com.ph)

Knowing the basic information on how make a profit in the stock market, now where can you begin? Usually, investors participate in the market through stockbrokers. A stockbroker buys and sells stocks on behalf of investors. The complete list of stockbrokers (both online and traditional) and descriptions of the investing procedures are also available in the PSE official websitec and the PSE Academy websited.

Peñaflor says that the ideal progression for a beginner is to begin with a broker assisted account (An account where a licensed broker assists the account holder in deciding when to buy or sell securities). With this kind of account, the investor could ask broker for help, learn more about the terms, and so on. When the investor is finally confident with his knowledge about the stock market, he can then opt for an online account (where investors can trade online) or discount broker. A discount broker is basically someone who only trades, and gives no personal advice.

The advantage of having an online account, or a discount broker, would be the lower commission fees (usually half a percent). To open a broker-assisted account, the minimum would be 25,000 PHP while an online account would need only 5,000 PHP. (This shows that you don’t have to be a millionaire to be able to participate in the market.)

Engaging the public

To increase market participation, Peñaflor stated that market education is key. To target this, the PSE also has a market education arm. This department aims to help those interested to “win” in the stock market.

“We educate the investing public. We teach them how to invest properly, we teach them the basics. We teach them the fundamental technical analysis and portfolio management so that they can invest wisely and hopefully win in stocks,” Mr. Peñaflor adds.

EDUCATING THE PUBLIC: PSE Academy is the official market education website of the PSE.(© The PSE Academy Website, www.pseacademy.com.ph )

Most basic market education programs are free, but in addition there are more advanced programs. The PSE also has social media campaigns and various social networking accounts to further broaden exposure to the public. Those interested in learning more could also visit the PSE Academy websited, where visitors could download reading materials, podcasts, etc. to help educate potential investors. Finally, the PSE also works with the government, academe, and brokers to create marketing campaigns such as: fun-run events, golf tournaments, and so on, to increase awareness about the stock market.

Final thoughts: stock market and “gambling”

     At this point, you are probably wondering, is the stock market gambling?

It may be similar to gambling due to the risk involved, but only if you do nothing after putting your money in the market. Dumlao explains, “It has to be understood that investing in the stock market is not magic where you put in money and then tomorrow, you’re wealthy. If you put in money, you put in money in the market as investment and it stays there for a long time. And after a long time, after really investing, then more generally, one would profit. So the profit is long term, it takes years. When I say years, probably 10-15 years, when you invest. It’s not something you earn overnight.”

In his article in the Philippine Daily Inquirerb, financial planner Efren Ll. Cruz of RFP Philippines noted how market practitioners study the market through different methods such as fundamental research and technical analysis. He also said that even ordinary investors can easily learn methods such as peso cost averaging. You can also ask help from stockbrokers and other experts. In other words, there are many ways you can do in order to avoid leaving the fate of your investments to magic or pure luck. So why not try it out already?

FOOTNOTES

(a) Camus, Miguel R. & Mia M. Gonzales. (2012, December 04). PSEi breaches 5,700 for first time to cap winning streak. BusinessMirror. http://www.businessmirror.com.ph/index.php/news/top-news/4578-psei-breaches-5-700-for-first-time-to-cap-winning-streak, Accessed 08 December 2012

(b) Cruz, Efren Ll. (2011, July 26). Is Investing In Stocks Gambling? Philippine Daily Inquirer. http://business.inquirer.net/8999/is-investing-in-stocks-gambling, Accessed 8 December 2012

(c) Philippine Stock Exchange, Inc. Official Website. http://www.pse.com.ph

(d) Philippine Stock Exchange Market Education Department. PSE Academy Website. http://www.pseacademy.com.ph/

(e) Philippine Stock Exchange & CitisecOnline. A Basic Guide to Investing in the Philippine Stock Market. http://www.pseacademy.com.ph/global//UserFiles/PSE-COL%20primer_HiRes(1).pdf

(f) Pinoymoneytalk.com. Catholic Church has billions invested in BPI, Philex, San Miguel. http://www.pinoymoneytalk.com/church-philippines-rich-wealth-stocks/, Accessed 8 December 2012.

(g) Rappler. New PSE building at Fort Global to break ground this 2012. http://www.rappler.com/business/5108-new-pse-building-at-fort-global-to-break-ground-this-2012

1616 view(s)

Comments

comments

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>


-->