LIMITED domestic liquidity remains a challenge for smaller companies seeking to raise funds through the Philippine stock market, according to capital market executives who also cited the need to broaden local investor participation.
At the 58th annual conference of the Financial Executives Institute of the Philippines (FINEX) on Oct. 9, industry executives and a regulator discussed factors affecting the development of the Philippine capital market, including investor demand, financial literacy, and regulatory predictability.
CLSA Exchange Capital, Inc. President and Chief Executive Officer Paolo Antonio Azurin said the limited pool of domestic investors makes it difficult for small and medium-sized enterprises (SMEs) to raise capital through initial public offerings (IPOs).
“It’s so hard to do an SME here, right? Because the domestic liquidity isn’t there,” he said.
Mr. Azurin said a stronger domestic investor base could make smaller IPOs more viable by reducing reliance on foreign investors.
He said the costs and resources required to bring a company to market could also discourage smaller offerings, particularly when investor demand is insufficient.
Meanwhile, BDO Capital & Investment Corp. President Eduardo V. Francisco said the challenges facing the equity market should be distinguished from conditions in other segments of the capital market.
He said the market for bonds and preferred shares has remained active, reflecting investor demand for these instruments.
“Technically, that’s a capital market, except it’s fixed income,” he said.
Mr. Francisco said one challenge is encouraging more investment in IPOs, noting that existing investment arrangements do not necessarily require fund managers to allocate capital to new stock offerings.
He cited the Personal Equity and Retirement Account (PERA) framework, under which fund managers retain discretion over investment decisions.
According to Mr. Francisco, increasing PERA contribution limits would not necessarily translate into additional funding for IPOs.
He said the Philippines could consider mechanisms adopted in other countries that provide dedicated pools of capital for public offerings.
Securities and Exchange Commission (SEC) Commissioner McJill Bryant T. Fernandez identified limited household savings and low investment participation as challenges to the development of the domestic capital market.
He said improving financial literacy could help more Filipinos understand available investment products and their associated risks.
He also said the SEC has been pushing for legislation that would make financial literacy a mandatory subject in secondary education.
“So, it’s a work in progress. We completely acknowledge there’s work that needs to be done in terms of financial literacy,” he said.
Mr. Fernandez also called for greater consistency and predictability in regulatory implementation, saying this would require coordination across government agencies rather than action by the SEC alone. — Alexandria Grace C. Magno