Is PSE basically, a bad stock market?

If you ask my friend, investment analyst and media columnist John Mangun, it definitely is. For the longest time, John had the highest hopes not just for our local stock market, but for the country as well. I used to be a little embarrassed that this American had more faith in my country than I. But now it seems, John has seen the light, or rather, the lack of it.

In his column for the current issue of Graphic magazine, John slammed the current efforts of government officials and the PSE board to try and rebuild local and foreign investor confidence on the exchange on the basis of reforms undertaken after the BW scam. A mission will visit Hong Kong and Singapore to sell PSE as a "new exchange."

It isn’t going to work, John suggests, because "the root causes of problems at the PSE have less to do with reforms and more to do with the fact that we have a bad stock market." And that’s primarily because "the overwhelming majority of corporations listed on this exchange is not suitable for a traditional stock exchange and only deserve the Wild West market that we had in the past. There are only a handful of companies on the PSE that could qualify for continued listing on other world exchanges."

No wonder the trading volumes at the PSE had been dismal. I seem to recall that there was a day, maybe two weeks or so ago, when less than P100 million was traded. I think John is right about the quality of the issues listed at the PSE. Unless some more basic things are done, our stock market may just dry up on the vine, so to speak.

John points out that people invest in the equities market to make money from the continuing profits of listed corporations. Not so at the PSE. People make their money by constantly trading, preferably with insider information. John observes that "very few companies on the exchange share profits with shareholders. If you looked at the dividend history of most PSE listed firms, you would think that little operating profits are ever generated."

John then cites an example of what to him is a scandal abetted by the PSE. "A few years ago, several cement companies went public. These were long standing, highly profitable companies that had amassed large amount of retained earnings over the years. In the two years before listing, literally hundreds of millions of pesos were paid in dividends to the private owners. In effect, the private owners stripped the companies for past profits and then sold their ownership to the public. Certain countries would consider this fraud."

John also cites the inability of the exchange to provide liquidity as another reason to stay away. Liquidity, or the ability to sell out of a share position, is absolutely vital to a stock market. Our stock market does not have that. "SM Prime Holdings for the last three years has traded less than 20 percent of its shares annually. Ayala Corp. trades less than 10 percent... Companies are allowed to go public with only a very small portion of their share ownership, unlike true world class markets."

And before anyone would dismiss John as just some ugly Gringo, let me point out that I have yet to meet a more pro-Filipino American than him. Married to a Filipina, John has more faith in our system and cultural peccadillos than many of us native borns. For one, he sends his children to a public school. Of course public schools in Makati are not typical of our public schools in that Jojo Binay spends to make them as world class as possible. But still, John Mangun sends his kids to public schools.

John also enjoys a San Miguel beer as much as the next Pinoy at the kanto. In fact, he once upon a time put up some kind of an ihaw ihaw beer garden which prospered until the Erap impeachment trials glued people to television instead.

John is one person who is in touch with the common Pinoy. He has even been a victim of street violence, with a five inch gash on his head to remind him of how it is to be victimized by a drug-crazed neighbor. Still, I doubt if he will want to go back to Los Angeles and join the migrating Pinoys. In other words, he has cast his lot with all of you unfortunate Pinoys out there who are unable to get a US visa. And as a taxpayer himself, he has the right to bitch about our sorry condition as the rest of us.

Maybe PSE Chairman Vivian Yuchengco should reconsider that selling mission the PSE is organizing. The PSE and the country would be better off saving all that foreign exchange they will spend for nothing. In the meantime, we just have to take John’s parting advice in his Graphic column, which is, buy a sweepstakes or lotto ticket instead. "You might do better to consider investing in the PCSO rather than the PSE."

Well, John, nice to know you are fed up too... at last.

"Philippinization"

According to an economist interviewed by the Far East Economic Review, "we may be witnessing what he calls the Philippinization of the Indonesian economy." You can bet your last peso that isn’t something good.

Indeed it isn’t. The article in the latest issue of the Review has to do with the migration of contract manufacturing of shoe brands like Nike and Reebok to Vietnam, China and even Thailand where labor costs are higher than in Indonesia. Part of the problem, the Review article surmised, is Indonesia’s reputation for lawlessness and chaos. Sounds like the Philippines, right?

"You have rumors of expats having their houses torched, of machete fights breaking out on factory floors," says John Shanley a footwear analyst at New York’s Wells Fargo Securities. "Whether they’re true or not, no one wants to find out." The Review also reports that "businessmen also blame Indonesia’s newly empowered labor unions. Under former strongman Suharto’s rule, labor was kept on a tight leash by the government. Since Suharto’s downfall in 1998 the country’s only labor union has morphed into 62 national unions and hundreds of local outfits. New government regulations have made it harder to fire workers and have hiked wages."

Excessively labor-friendly laws and higher wages, the Review points out, have made Indonesia expensive compared with China and Vietnam. "It’s a lack of competitiveness," says the chairman of the footwear association, slamming a black and gray Nike shoe on his office table. "Labor has gone from 15 percent of the sales price in 1996 to 22 percent now."

Ironically, the Review reports, even Thailand, where wages are considerably higher than in Indonesia, has been able to gain market share at Indonesia’s expense. Thailand appears to be getting business for a combination of reasons–a better country image, higher worker productivity and fewer labor issues.

The article concludes with the observation that Indonesia is witnessing the Philippinization of its business environment. Oh, well... at least, hindi tayo nag-iisa.

Life after death

"Do you believe in life after death?" the boss asked one of his younger employees.

"Yes sir."

"Well, then, that makes everything just fine," the boss went on, "about an hour after you left early yesterday to go to your grandfather’s funeral, he stopped in to see you."

(Boo Chanco’s e-mail address is [email protected])