UNLOVED and underappreciated is the best way to describe the perceptions about the Philippine Stock Exchange (PSE).
The most common criticism is that the PSE is an “Old Boys’ Club,” where a select group of insiders control what happens. That may or may not apply to the corporation PSE Inc., since the company that owns the stock exchange is a closely knit group. But when it comes to the stock trading, those broker-members probably wish it was controlled by the “old boys and girls.”
The stock exchange is manipulated, and an average investor cannot get a fair shake. Let’s assume for a moment it is true that, from time to time, certain issues are “pushed” in a certain direction. When you see stocks that are up 50 percent in succeeding days, the natural assumption is that some people are buying with knowledge that others do not have. Has it happened many times? Of course.
But you must also understand this. No one puts a gun to your head to buy stocks. If there is a group pushing prices higher, that means it is buying in the hope that, at some point in the future, someone else will buy from the group at a higher price. If no one comes in after the price is up 200 percent and buys, the “manipulators” are left holding the bag. That, too, has happened many times.
The best and may be the only protection against being caught in a manipulative scheme is to not play the game. Look at it this way. There are dozens of scams, from pyramid schemes to the famous “1-2-3,” that can remove your money every day. When people lose, they portray themselves as victims in the same way a genuine victim might have their jewelry snatched. But a person who willingly gives his money to another person in the hopes of gaining a reward is not a victim. He is a participant. He may be ignorant and dumb, but he is not a victim.
The PSE does the best it can to protect the public from unscrupulous stock-market operators. But even the Securities and Exchange Commission, as well as the courts, has ruled that regulatory agencies do not have the responsibility to act as loco parentis, “in the place of a parent.”
However, I will agree that both the regulatory agencies and, sometimes, the courts have been too lenient in meting out punishments for these crooks.
The best protection for not being taken advantage of is to not put yourself in a situation to be cheated. There are dozens of quality blue-chip stocks that you can invest in that are not going to be subject to this nonsense.
The leadership of the PSE has evolved and changed for the better. Current President and CEO Hans B. Sicat is excellent at his job, because he understands both how and why a stock market should function and how the market fits in to the capital markets.
The biggest failure of the leadership has been with bringing more Filipinos in to invest. Part of the reason that regulatory fees and taxation make mutual funds—a great vehicle for new and small investors—a difficult business to turn a profit. Therefore, the funds are must focus too much of their promotion activity on the larger potential clients.
The PSE is a human-driven market, as I have said before. The fact that high-speed computer trading does not control this exchange, as in the developed countries, keeps the trading “cleaner” and more honest.
The major criticism I have is that the “free-float”—the amount of shares readily available in the market—is way too small. A minimum of 20 percent of the outstanding shares should be in the hands of the public. The consideration should also be how many shareholders there are who own less than 0.01 percent to 1 percent, depending on the number of total outstanding shares.
The PSE has significantly improved both the technology of its trading system and in making information easily and readily available to the public.
Perhaps, the best quality of the local stock market is the investors themselves. For all the criticism of the stock market, ultimately, it is the investors who make the thing work. My years of experience show that local investors are more prudent and sensible than those in most countries.
Local investors are more prone to trade on valid corporate news, like earnings, than only on speculation and hype. Not always, of course, but more often than not.
Our stock market needs more maturity but, as it stands, it has made much progress in the last years.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.