BSP wants to further develop Philippines capital markets

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) wants to further develop the capital markets in the Philippines as it continues to lag in the region.

BSP Governor Eli Remolona Jr. said in an interview with reporters that the development of the capital markets in the Philippines is on top of his “wishlist.”

Aside from the easing of inflation within the central bank’s two to four percent target range, the BSP chief present his recommendations during the 119th meeting of the Capital Market Development Council (CMDC) on Dec. 6.

In his presentation titled “In search of Greenspan’s spare tire,” Remolona talked about his three wishes, including opening up the corporate debt market to single A and triple B borrowers.

In the Philippines, Remolona lamented that all the bonds are either triple A or double A, unlike in Thailand which is dominated by triple B bonds.

He cited Michael Milken, known as the junk bond king of the 1980s, who partnered with Drexel Burnham Lambert to put together a network of investors in high-yielding bonds that raised vast amounts of money for leveraged-buyout of firms.

“Today, the median bond issue in US corporates is  non-investment grade,” the BSP chief said.

Remolona also wants to make the stock market more eventful when material information arrives.

He pointed out that a listed firm’s stock price sometimes show no reaction to the release of significant news, suggesting that insiders have already traded on the news before its release.

Former Philippine Stock Exchange president Francis Lim, who was present during the meeting, said in 2019 that insider trading exists in the Philippines.

“Insider trading is an evil that our laws have long wanted to eradicate to shore up public confidence in our stock market,” Lim was quoted in an article in The STAR published in January 2019.

The corporate lawyer lamented that courts have yet to find one single individual guilty of insider trading.

Remolona added that he wants the Philippines to join the global shift to equity index and emerging market bond exchange traded funds (ETFs).

“Philippines markets are not included in any major global equity ETFs or emerging market bond ETFs,” the BSP chief said.

Index funds BlackRock, Vanguard and State Street control 88 percent of S&P 500 firms and they manage the biggest ETFs, which are highly tradeable index funds.

On the other hand, the top three emerging market fund ETFs include JP Morgan, Barclays and Invesco.

Remolona said that the Philippines is the second least develop stock market and bond market as a percentage of gross domestic product (GDP) in the region, next to Indonesia.

He explained that then US Federal Reserve chair Alan Greenspan in 1999 cited the regions over its heavy reliance on bank financing that led to the Asian financial crisis in 1997.

“This leads one to wonder how severe East Asia’s problems would have been … had those economies not relied so heavily on banks as their means of financial intermediation… Had a functioning capital market existed, might as well have been far more benign.. East Asia had no spare tires,” Greenspan remarked in 1999.