Foreign money in listed stocks

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Emeterio Sd. Perez

WHAT could possibly happen if all foreigners who trade on stocks listed on the Philippine Stock Exchange decide to move their money out of the country and take it elsewhere in Asia? Such exodus may be seen as a remote possibility at the moment. Nevertheless, the Filipino public traders should be ready for any such eventuality as they must know that some of the rich families who own businesses in this country are in the market primarily to save taxes when issuing shares to themselves.

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By paying only one-half of 1 percent of the listed stock’s market value, family-controlled companies definitely save much more than if their businesses remained private and were assessed at least 25 percent of their taxable income. This could be one of the reasons why businessman Jacinto L. Ng Sr., who owns the Rebisco group of companies, topped the list of income taxpayers for taxable year 2014. Rebisco stands for Republic Biscuit Co.

As the Philippines’ biggest taxpayer in 2014, Ng paid the Bureau of Internal Revenue (BIR) P280.107 million. In second place was Sen. Emmanuel Dapidran Paquiao, whose income tax amounted to P210.306 million that year, lower by P69.801 million than Ng’s tax payment.

Both Ng and Paquiao, along with 480 others in the BIR’s list of big taxpayers in 2014, were, perhaps, only being honest in reporting their taxable income. How about those perceived by most Filipinos to have stashed their illegally gotten wealth in other countries? Do they really have such savings in foreign banks?

Foreign money

Back to this day’s topic. The issue about foreigners leaving the Philippines for good should have been raised a long time ago, yet nobody dared to ask the question.

It is easy to speculate about foreign money leaving the local exchange for other stock markets in the region. The real question should be “when?”

As far as Due Diligencer is concerned, foreign funds may not totally abandon the local market. They cannot leave the stocks in which they invest other people’s money simply because of the weakening of the Philippine peso.

Consider this: If foreign funds came in at a time when their US dollars fetched less than P50, say at P46.0276, how much would they lose if buying back their dollar would cost them P51.0094? The exchange rates were based on the foreign currency monitors of the Bangko Sentral ng Pilipinas.

Foreign funds may be earning from their placements in local stocks. But when they unload, they would not risk losing that part of the proceeds of their stock liquidation due to a more costly dollar. They are here to stay (even if they’re not happy with Congress and certain other legislators who believe they are worth the pay they get from Filipino taxpayers’ money, just by talking but without initiating any laws to be passed.)

Due Diligencer’s take

Who benefit from the foreign funds’ sale of locally listed shares?

Definitely, the banks may be profiting from that. By depositing or investing their clients’ money in other investment products, foreign funds could be earning more. Nobody knows for sure how much of it ends up in local banks.

Due Diligencer has yet to see or read a study on the movement of foreign money in the Philippines. So far, only the PSE has been monitoring foreigners’ investments in listed stocks. It maintains a “weekly market watch” on www.pse.com.ph, and one of the posts there says foreigners accounted for 50 percent of total transactions for the year ended Sept. 29.

In its latest posting on its website, the PSE said “% of foreign to total” dropped to 45 percent from Sept. 18 to Sept. 22 but recovered the following week when the percentage rose to 65 percent.

In previous weeks, the PSE said foreigners contributed 53 percent to total trades from Sept. 11 to Sept. 15, but their contribution declined slightly the following week to 47 percent.

These percentages should tell the public investors an obvious message: Without foreign money, the local stock market would have to rely on local investors, who are mostly the public. How about the families who own those listed companies? What should be their role in keeping their companies’ shares listed? Just asking.

esdperez@gmail.com

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