The Philippine Stock Exchange is aiming to introduce exchange-traded funds and securities lending to lure overseas investors to one of Asia’s smallest stock markets, according to President Hans Sicat.
The bourse, which lengthened its trading day by an hour to 1 p.m. starting Oct. 3, is in talks with government agencies to introduce ETFs and “a system for borrowing and lending securities to increase trading activity,” Sicat said in an interview in Manila yesterday. ETFs are exchange-listed products that mirror indexes, commodities, bonds and currencies and allow investors to buy and sell them like stocks.
“The exchange is working with potential providers to push specific products,” Sicat said. “We are interacting, educating and briefing the Department of Finance, the Securities & Exchange Commission and Bureau of Internal Revenue to get the conversation to the appropriate level and obtain the right approvals and framework.”
The Philippine stock market has been left behind by most of its peers in the region in terms of scale and product offerings. With a market capitalization of $142 billion as of Oct. 4, it’s the smallest of Southeast Asia’s five major markets, behind Singapore, Malaysia, Indonesia and Thailand. Japan is Asia’s largest market with a value of $3.54 trillion.
Offerings for investors in the Philippines are limited to common shares, preferred stocks, warrants and depositary receipts. Futures, options and derivatives are traded in Malaysia, where the stock market is more than twice the size of the Philippines, and in Thailand, which had a market worth $223 billion as of Oct. 4. The Thai and Malaysian exchanges also already offer ETFs.
The extension in hours is the Philippine exchange’s second attempt in nine years to boost trading value. It scrapped longer hours in October 2002 amid a global share slump, eight months after it revived afternoon trading for the first time since 1976. Trading will be extended again next year to end at 3:30 p.m., with a 90-minute break at noon.
“This can be the first of a number of steps that the exchange can use to attract more interest from international investors,” Ross Baildon, Hong Kong-based head of equity syndicate for Asia at UBS AG, said in a Sept. 30 interview. “Other things should follow, like the introduction of more products such as options and futures.”
Philippine stock trading has averaged $128 million a day this year, trailing Malaysia’s $597 million, Indonesia’s $604 million and Thailand’s $1 billion, according to data compiled by Bloomberg. An average of $1.26 billion of shares traded daily this year in Singapore, Southeast Asia’s biggest market.
Increasing the number of listed companies would also attract fund managers, said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., which oversees about $10 billion.
“The Philippine exchange has to standardize the things it does and offers if it wants to be a global player,” Baring’s Do said. “The Philippines has to look at the best practices in the world. Having more companies and products listed on the exchange will help the Philippine market get more visibility in the world.”
Overseas investors bought a net $420 million of Philippine stocks so far this year, compared with $1.71 billion in net purchases of Indonesian equities, according to data gathered by Bloomberg. Still, the Philippines is ahead of India, South Korea, Taiwan and Thailand, where overseas investors are net seller so far this year.