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The PSE: A congressman weighs in

Elected officials should rarely—if ever—make any comments about the financial and stock markets and then only under certain conditions.

One condition that is difficult to fulfill is that the person actually has some knowledge about what he is talking about. Another is that the person in question has done something that might have positively influenced those markets. Legislative actions and implementation by government departments can have a major effect, as we will soon witness with the new tax law.

The previous administration was extremely fond of taking credit as the Philippine Stock Exchange (PSE) was making record highs in 2014. When the market fell back in 2015, suddenly Malacañang went deathly silent about stock prices. The Duterte administration started the same way but has since been quiet as it should be. If in six months stock prices are still rising—and inflation stays below 4 percent—only then will an “I told you so” be acceptable.

The late former Sen. Ernesto Maceda was one who qualified on both accounts. In my many conversations with him, I can assure you the senator was as knowledgeable about the stock market as any experienced investor or active trader. That is not true of all legislators. Republic Act 8799, or the Securities Regulation Code, has sections that were conceived, at best, by someone who read Wikipedia and, at worst, by someone who knew someone who had read Wikipedia.

A statement released on January 21, by the Deputy Minority Leader Rep. Luis Jose Angel N. Campos Jr. began with “Stock market boom to help drive jobs creation.” I cannot attest to Campos’s expertise about the local stock market, but some of the analysis is sensible, which was a pleasant surprise.

From the news release: “The country’s booming stock market is expected to help drive jobs growth in the months ahead, primarily by enabling publicly traded companies to raise additional capital for business expansion.” That sounds good on paper but is not necessarily true in real life.

The statement says that the government will gain additional revenue through the increase in the Stock Transaction Tax and as the PSE generates a steady revenue stream from stock trading. I do not have a problem with that tax increase. If a one-tenth of 1-percent increase in the transaction tax is going to kill the stock market as some have said, then we should have put our funds into Lotto tickets, instead of the market these past years.

Now, about that job creation, here is where things get a little sticky. This applies both to initial public
offerings (IPO) and to companies raising additional capital. A company that raises cash to pay down debt is a red flag for me. If a company needs new money to pay off debt, that tells me maybe they took on too much debt in the first place. That is bad management and new funds are to cover a mistake.

If they are paying off the debt entirely, that may be worse. Borrowed money should be used to make more money and then that profit is used to pay the debt. So why do you need more money? If new funds are actually going to be used for specific new profit-making ventures or expansion, then the IPO or follow-on offering should be a winner. But you must read the prospectus to find out.

Finally, “Campos also sees the roaring stock market boosting consumer confidence and spending.” How I wish I could count on that. Nonetheless, stock prices going up are definitely better than prices going down.

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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.

 

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