IPS-21_3_Philippine Stock Market in Perspective

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Transcript of IPS-21_3_Philippine Stock Market in Perspective

  • 12th National Convention on Statistics (NCS) EDSA Shangri-La Hotel, Mandaluyong City

    October 1-2, 2013



    Regina Georgia R. Crisostomo, Sarah L. Padilla, Mark Frederick V. Visda

    For additional information, please contact:

    Authors name

    Mark Frederick V. Visda

    Designation Head of Corporate Planning & Research Department Affiliation Philippine Stock Exchange, Inc. Address Ayala Triangle, Ayala Avenue, Makati City 1226 Tel. no. (632) 819-4100 E-mail

    mvvisda@pse.com.ph; mvisda@gmail.com

    Authors name

    Regina Georgia R. Crisostomo and Sarah L. Padilla,

    Designation Data Analysts Affiliation Philippine Stock Exchange, Inc. Address Ayala Triangle, Ayala Avenue, Makati City 1226 Tel. no. (632) 819-4100 E-mail

    rrcrisostomo@pse.com.ph; slpadilla@pse.com.ph

  • Page 2 of 21



    Regina Georgia R. Crisostomo, Sarah L. Padilla, Mark Frederick V. Visda1


    The Philippine stock market is one of the earliest exchanges established in Asia

    and has a rich history of events that have contributed to its development. It is also

    considered as a barometer of future economic performance, and for years has served its

    primary functions of facilitating the dual role of capital raising for companies and trading

    of shares by investors. The paper takes an in-depth look at available historical data since

    the unification of the previous two stock exchanges. The time series information provides

    insights on the development of the stock market, and how some of its characteristics

    persist while some are undergoing gradual changes. Finally, the paper examines several

    studies that suggest the stock markets relationship to economic growth and presents

    cross-country stock market development ratios that can serve as jump-off points for

    further examination and study.1

    I. Brief History of the stock market in the Philippines

    The first stock exchange in the Philippines was set up on 08 August 1927 during the

    American colonial period as the Manila Stock Exchange, Inc. (MSE). Operations ceased during

    the Japanese occupation and resumed in 1946 after Japans surrender in 1945. As of 25

    January 1946, only fourteen (14) companies were listed in the MSE, divided in the following

    sectors: Banks, Sugars, Commercial and Industrials, Insurance, and Mining. There were thirty-

    three (33) brokers on record, twenty (20) of which were active as of October 1947.

    On 27 May 1963, the Makati Stock Exchange, Inc. (MkSE) was organized. The MkSE

    started operations on 16 November 1965. Eighteen (18) companies were listed in the MkSE on

    its first day of operations, sixteen (16) of which were also listed in the MSE. In 1973, a

    Presidential Decree was passed, ruling automatic listing in both exchanges of securities that

    have been approved for listing and trading. Two years later, the Securities and Exchange

    Commission (SEC) implemented uniformity of price fluctuations, board lots and trading symbols

    1 The authors are all employees of The Philippine Stock Exchange, Inc. Ms. Crisostomo and Mr. Visda are part of the Corporate

    Planning and Research Department (CPRD), while Ms. Padilla was previously a part of CPRD but now works for the Market

    Education Department. The authors would like to acknowledge and thank former PSE President, Mr. Ernest Leung, for his invitation

    and prodding for the team to produce this discussion paper, which aims to support Mr. Leungs advocacy of educating Filipinos

    about the stock market. Any views or opinions, either defamatory or complimentary, are solely those of the authors and do not

    necessarily represent those of the PSE. The PSE together with its affiliates and subsidiaries will not accept any liability arising from

    the consequences of, and any actions or decisions made in respect to any statements expressed henceforth.

  • Page 3 of 21

    in both the MSE and MkSE. Composite indices were introduced in MkSE and MSE in 1978 and

    1986, respectively, in order to measure market movement.

    The Philippine Stock Exchange, Inc. (PSE) was incorporated on 14 July 1992, in

    anticipation of the unification of MSE and MkSE. The one price-one market exchange was

    achieved through the link-up of the two existing trading floors on 25 March 1994. Overall, there

    were 189 listed companies with a total market capitalization of Php1.39 trillion, volume of shares

    traded of 704.27 billion, and value turnover of Php364.30 billion.

    In 2006, to accommodate the growing diversity of listed companies in the Exchange and

    provide better sector comparables, the industry classification of listed companies was revised

    and companies were classified according to their major source of revenue, instead of the

    primary purpose stated in their articles of incorporation. The six sectors currently being used

    were established, namely, Financials, Industrials, Holding Firms, Property, Services, and Mining

    & Oil.

    Whole day trading was implemented on the first trading day of 2012, starting at 9:30am,

    with a recess at 12nn to 1:30pm, and closing at 3:30pm. This aimed to align the Exchanges

    trading hours with other Asian exchanges, and to increase market liquidity by opening up

    trading in the PSE to markets in other time zones. During the said year, the PSEi hit 38 record

    highs (45 intraday), at a peak of 5,832.83 on 26 December 2012. The PSEi closed at 5,812.73

    at the end of 2012; there were 254 listed companies, 234 of which were traded during the year.

    Total market capitalization was at Php10.93 trillion, volume traded was 1.04 trillion, and value

    turnover was Php1.77 trillion.

    During the first eight months of 2013, the PSEi first surpassed the 7,000 mark on 22

    April 2013 at 7,120.48. Thirty-one (31) record high instances for the PSEi closing levels have

    been achieved, reaching its peak on 15 May 2013 at 7,392.20, a 27.2% increase from its 2012

    closing level. Total value turnover as of end-August 2013 has also exceeded the full year value

    turnover recorded last year, at Php1.78 trillion.

    Figures 1 and 2 illustrate the growth of the PSE in the past 15 years. While the main

    index PSEi grew to reflect increasing stock prices, market liquidity also expanded as measured

    by total value turnover and trade frequency (number of trades). From less than 5,000 trades a

    day during the bear period spanning the late 1990s and early 2000s, the market has now grown

    to more than 30,000 trades a day. Aside from benefitting from positive developments in both the

    local and international fronts, several factors also contributed to the expansion. These include

    the upgrade to a new trading system that could easily handle a significantly higher volume of

    trading, and the extension of trading hours to include an afternoon session. The strength of local

    company fundamentals also had a big impact to increased interest in Philippine equities.

  • Page 4 of 21

    Figure 1. Daily PSEi and Total Value Turnover (in million PhP)

    Source of basic data: PSE; value turnover data truncated to Php15 billion

    Figure 2. Daily PSEi and Frequency of Trades

    Source of basic data: PSE; trade frequency data truncated to Php35 billion

    It is also interesting to look at the difference over time in average value turnover per

    trade in the market, as seen in Figure 3. The data range was narrowed down to value of trades

  • Page 5 of 21

    up to Php100,000, as this is the interval where most of the trade frequencies occur. The results

    show there has been a marked increase from 1998 to 2012 in the number of trades which are

    valued lower. Specifically, trades that are valued at Php6,000 and lower have the biggest

    frequency for 2012 compared to the largest frequency in 1998 which ranged from Php10,000 to

    Php12,000. The comparison between 1998 and 2012 in terms of number of trades valued at

    Php2,000 and below has also been staggering, perhaps supporting the perception that there are

    more retail investors actively participating in the market today. It should be noted though that the

    analysis made here did not consider year-to-year changes, and did not factor in market-moving

    events that happened during these middle periods. This could be a subject for further analysis in

    the future.

    Figure 3. Frequency of Trades based on Value Traded, 1998 vs. 2012

    Source of basic data: PSE

    Another indication of the continued development of the local stock market can be seen in

    its market capitalization (MCap), which estimates the total value of the entire market.

    Specifically, Figure 4 shows that the MCap of domestic companies has grown substantially that

    it has reduced the MCap share of foreign firms listed in the PSE. Since Sun Life Financial

    Corporation and Manulife Corporation listed in the Exchange in 1999 and 2000, respectively,

    these two companies have cornered about 50%-60% of the total MCap for several years. As of

    2012, this foreign-local ratio has been reduced to 20%-80% in favor of domestic companies.

    Apart from improved net income performances that pushed valuations higher, the emergence of

    various conglomerates as well as merger and acquisitions which led to the creat