Last Friday was the deadline for submission of entry for the Virtual Stock Trading Challenge of The Manila Times as hosted by this column.
To reiterate, the program was initiated to help promote, in some way, the development of the capital market– the financial system that works as an effective conduit for the demand and supply of debt and equity capital – which one economist aptly explained, “will lead to the vital functioning of an economy, since the capital market is a critical component of generating economic output.”
In a more specific way, the virtual stock trading contest is designed to raise the literacy and skill of the general public to trade gainfully in the stock market – again, a way that should ultimately encourage more savings and investments from the populace to support economic activity and help fund government development initiatives.
We already have the lineup of contestants for the virtual stock trading game. They have been notified and they could start trading on March 1.
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Lest it be too late, let’s take this opportunity to congratulate, at the same time, convey some thoughts to the members of the board of directors and officers of the Philippine Stock Exchange (PSE) in finally having the local bourse under one roof. This development is a very positive step toward enabling the institution to further harness its energy to increase the efficiency and level of activity of the local market to handle transactions at par with the larger and more popular investment houses.
High above on the list is market liquidity. Liquidity brings together investors and businesses all over the world. One significant study observed that there are at least four key elements that promote liquidity.
First, according to the study, liquidity is present when “investors can easily buy and sell shares at prevailing market prices in whatever quantity they desire.”
Second, “the value of shares traded is a substantial percentage of the nation’s gross domestic product.”
Third and fourth, which are tough challenges to hurdle, require the following: “a substantial portion of total market capitalization is traded every quarter and the market can handle bouts of heavy trading without wild price swings.”
With this new development, too, the PSE can also now focus its energies on collaborating with government in formulating policies that will encourage equity investments by domestic and foreign investors.
The best way to do this, based on the experience of bigger and more progressive bourses now, is to remove tax, as well as legal and regulatory barriers that stifle equity investments.
As these bigger bourses have shown, too, there was no need to adopt tax incentives; government just has to “remove barriers to the free flow of capital.” The natural result was, it allowed market forces to work to boost the country’s economic growth and prosperity.
True, we may already have a good mix of regular daily value turnover from domestic and foreign investors. But they are certainly still relatively far too low and small – compared even with our Asian neighbors.
One contributory factor is the absence of a wider selection of stocks listed on the local market. We have at the moment a lack of variety of stocks that can “suit different risk tolerances and financial objectives.” This lack of variety and number of stocks to choose from has discouraged big funds from entering our market for quite a long time now. As a result, this has also contributed to the market’s stunted size, which has kept it vulnerable to big price swings – a situation that has always been a negative factor in the market’s long-term development.
Remember the days when market turnover was at P4.0 billion a day? We already had a mini-bull market – prices shoot up sky-high, the market sobers up and prices plunge to unending lows.
Things have changed since then, though. Thanks to the present efforts of the PSE, they have yielded positive results. We now enjoy a more viable market with regular daily total turnover of P7.0 billion to P9.0 billion. But, then again, this is not enough. To be an attractive investment haven that would really bolster more economic activity, it must be bigger.
Lastly, we need the existence of transparency and the presence of regulations that allow for a fair and efficient market environment. This includes access by investors and other market participants to the necessary information in a timely manner.
Along with the Securities and Exchange Commission (SEC), the PSE has relatively been at par with other exchanges along this line.
Recently, the PSE was named the best stock exchange in Southeast Asia by institutional investment magazine Alpha Southeast Asia, which recognized the bourse’s “initiatives to promote investments literacy, introduction of new products and technology developments, among others.”
To digress, this was the fourth time in five years the PSE has been cited as the best stock exchange in Southeast Asia by the magazine.
Again, congratulations to the members of the board and officers of the PSE.
10 biggest stock exchanges
It may interest you to know the top 10 biggest stock exchanges in the world. Two of them are described as being “only minutes apart.”
The first is the New York Stock Exchange, or NYSE, located on Wall Street in New York City. It was founded on May 17, 1792. As reported, it has the world’s biggest trader value, with an estimated capitalization of $19.223 trillion.
The next and second biggest is the NASDAQ (located in New York City, as well), which started as a market for technology companies. It was founded on February 4, 1971 and reportedly has an estimated market capitalization of $6.831 trillion.
Coming in third is the London Stock Exchange Group in the United Kingdom and Italy, founded on 1801. It has a capitalization of $6.187 trillion.
In fourth place is the Japan Exchange Group, founded on January 1, 2013. It was actually the product of the merger between the Osaka Securities Stock Exchange and the Tokyo Stock Exchange. It has an estimated market capitalization of $4.485 trillion.
Fifth is the Shanghai Stock Exchange in China, which was re-established on November 26, 1990 after being dormant for 41 years, owing to the Japanese occupation. It has an estimated market capitalization of $3.986 trillion.
Sixth is the Hongkong Stock Exchange, established in 1891. It has a capitalization of $3.325 trillion.
Seventh and eight are the Euronext of the UK, Belgium, Portugal, France and the Netherlands, and the Shenzhen Stock Exchange of China. Respectively, they have a market capitalization of $3.321 trillion and $2.285 trillion.
Ninth and tenth are the TMX Group in Canada and Deutsche Borse AG in Germany, respectively founded in 2008 and 1992. TMX has a market capitalization of $1.939 trillion, while Deutsche Borse AG has $1.762 trillion.
Den Somera is a licensed stockbroker. This article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing party/ies mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. Somera may be reached at firstname.lastname@example.org or email@example.com)