CAN you guess what the value of transaction at the Philippine Stock Exchange (PSE) was last week? Before I answer this question let me give you some perspective. I graduated from college in 1989 and joined the industry as a stock broker in October of that year. In the 1980s, Philippine stock markets were still using chalk and blackboards to register transactions. Back then brokers would go out and celebrate a day when total market value turnover reached P300 million. On the other hand, there would also be those days when traders on the floor would clap and cheer if someone actually stepped up to the board for a transaction. One thing I enjoyed about those days was the 10-minute coffee break at 11am. The market was only open in the mornings and traders still found a little time for merienda. Typical boom or bust situation.
The ’90s bull market was very different. Trading became computerized. The coffee break was killed. Foreign fund managers started traveling to, and investing in, the Philippines in much bigger ways. Over 40 foreign brokerage houses set up shop and a seat in the stock exchange sold at record high price of $2 million. The Manila and Makati stock exchanges united and value turnover would regularly break the P1-billion mark. It would occasionally peak at around P4 billion in daily value. A P300-million day would be considered a disaster since brokers were now paying top dollar for salesmen, research analysts and traders while commission rates were dropping due to the heightened competition. Back office folk were putting in many hours of overtime settling the multitude of transactions being handled daily. Then, in 1997, the Asian crisis hit.
Within the next five years after the start of the Asian crisis almost all the foreign houses that set up shop a few years back were gone. Salesmen, traders and research analysts lost their jobs. Value turnover dropped back down to a pathetic few hundred million pesos a day and the floor of the stock exchange was a very quiet place again. It was at about this time that the Philippine peso also peaked at P56/$1.
It was not until 2003 that the situation began to change. I think that the bull market from 2003 to 2007 was a key turning point for the Philippine equities market. This is when local individuals and corporations began to play a bigger role as investors in our equity markets. The result of this was a stronger peso, aggressive sales and growth in assets of mutual funds and unit investments trusts focused on investing in Philippine stocks and a surge in the PSE Index (PSEI) from 1,000 to almost 4,000 in just five years. Value turnover was now regularly over P3 billion daily and the size of our IPOs was significantly larger than the IPOs of the 1990s.
The global financial crisis which started in 2008 put a pause in our bull market…for one year. The PSEI dropped 48 percent in 2008 but quickly gained it all back two years later. As a matter of fact, we have had only two down years in the last 10 years—2002 and 2008. I feel that some of the highlights of this period were that valuations remained reasonable throughout and market turnover has remained consistent. The price-earnings (PE) multiple of the PSEI peaked at 16 times in 2007 and hit a low of 10 times in 2008. The PE average has been around 13 times with earnings growth rates averaging the mid-teens throughout the period as well. In the last two years, value turnover has averaged around P3 billion daily. This value turnover is comparable to the 2007 peak. Finally, the emergence of local investors as the largest contributor to daily turnover has made the foundations of our stock market stronger than ever. This is a more recent development but one that I believe will play a much more important in the coming years.
So, going back to my question at the top of this note, the value turnover for last week was P46 billion or an average of P9.2 billion ($215 million) per day. Astounding! It is no wonder that the Philippine Stock Exchange and their participants recently received an award from the Bureau of Internal Revenue as one of the larger tax contributors in the country today. Today’s average daily turnover is easily double of what would have been considered an excellent day in the last two years. This is uncharted territory.
Local investors continue to plow money into the market as interest rates are at all time lows and cash dividends are at all time highs. This strategy is spot on and I believe this trend will continue. On the other hand, foreign fund managers are now coming to the country to study investment opportunities in droves. They have placed some bets but have yet to raise their stakes. The usual explanation for fasts run-ups in stock prices is foreign buying and there is some concern that the recent inflows have push valuations making stocks expensive. This could be true but only for the short term. Any correction in the coming weeks will be just that, a correction. Buy on dips.
The timing of the PSE to extend trading hours when they did was also spot on. Now that there is more demand for Philippine equities, we open the store for a bit longer. Brilliant. It’s no wonder we are now trading at all-time high levels. This is uncharted territory.
Just remember that sailing in uncharted territory has its risks. The challenges are serious but the rewards are plentiful if you reach your desired destination safely. It appears to me that the coast is clear for now. The bear is nowhere in sight. There are some political and valuation reefs I can sense in the distance but for now they do not threaten the ship. Sail on and sail fast but most of all, sail smart.
(The author is the Investment Director for equity portfolio management for ATR KimEng Asset Management and Chairman of its investment committee. For comments, you may e-mail him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .)
