PSE wants upgrade on global indices

Posted at 05/07/2012 9:13 AM | Updated as of 05/07/2012 1:27 PM

MANILA, Philippines - With most of the country’s economic managers focused on investment-grade ratings, the Philippine Stock Exchange (PSE) is also hoping for another kind of upgrade—this one concerning the bourse’s weighting on global equity indices’ which would validate and likely add to already impressive gains so far this year.

Bourse officials said in a press briefing over the weekend that fund managers seeking better returns are drawn to the Philippine economy, with its stable prices and massive consumer base, helping drive up the PSE Index’s valuation and volumes since the start of 2012.

A higher weighting in a globally accepted measure like the MSCI Emerging Markets Index would boost Philippine stocks. Fund managers typically benchmark their portfolios against such indices and a rebalancing would prompt investors to allocate more funds to Philippine stocks.

“Given that our market cap has been increasing relative to the economy and that we are probably at par with some of the smaller Asean countries, we do deserve a higher weighting,” said Hans Sicat, who was re-elected for a second term as PSE president during the bourse’s annual shareholders” meeting on Saturday.

He said a key reform like re-implementing the 10-percent minimum public float rule has aided in boosting liquidity as once tightly held corporations are being required to widen ownership base.

The Philippines has one of the smallest equity weightings in the region based on the MSCI Emerging Markets Index in the first quarter. It accounted for only 0.74 percent in a basket of over 20 economies.

By contrast, regional peers like Thailand and Indonesia have an average weight of 1.95 percent and 2.74 percent, respectively, while China cornered 11 percent in the same period.

The PSE Index posted 19 record highs this year for a year-to-date gain of 21 percent. This helped drive valuations higher, pushing the benchmark measure up by a fifth to $240 billion (P10.15 trillion) in terms of market capitalization since the start of the year.

Daily volumes also rose to an average of $177.2 million (P7.5 billion) in the first four months versus $118.4 million in the same period last year.

“Because of reforms this government is implementing, investors have begun to take notice and that is why they are coming back and rebuilding their weights,” Roberto Vergara, re-elected PSE director and president of Government Service Insurance System, said in the same briefing.

Indeed, some international funds managers have increased their exposure to the Philippines, with JP Morgan Chase and Co. saying in February it has an “overweight” recommendation on domestic equities.  Its $82.3 million Philippine-focused equity fund said it’s retaining its preference for the banking and consumer segments, based on a report last month.

Vergara said GSIS, the state-run pension fund for government workers, has increased its equity allocation to 13 percent to 13.5 percent out of P640 billion in investments, mainly geared toward fixed-rate instruments. GSIS’s equity portfolio was 11 percent in February, a previous report showed.

He said stock market investments could rise to 15 percent of its portfolio, although the pension fund is not rushing to pump funds into the market now with the index trading at record highs.

“Markets do not go up in a straight line and there will be opportunities in the next couple of months to increase our weight in equities,” he said.