The Philippines’s 1 percent

column-John Mangun-OUTSIDE THE BOXINVESTORS participating in the Philippine stock market are surprised by this fact. The stockbrokers and Philippine Stock Exchange Inc. cannot seem to figure it out. The government talks about it from time to time, but actually try to ignore the numbers. Philippine companies seem totally unconcerned.

Depending on what data you look at, only about 1 percent of the Philippine population invests in the local stock market. That may not seem important, but for a country of our population and economic size, we have one of the lowest, if not the lowest, stock-market investment rates on the planet.

Investing in the stock market has several financial and wealth-building advantages. Stock-market share prices over time usually keep up with, if not ahead of, the inflation rate. Venezuelan stock-market investors are the only ones that have really been able to weather the inflation storm in that country. It is not always true, but it is true often enough to be able to consider the stock market as sort of an inflation hedge.

The value of shares also can usually track the growth of the economy. Here, again, it is not a one-for-one comparison, but good enough to again consider putting some money in the market. A stock market offers a diverse group of companies that represents the economy. If the economy is such that real property—and therefore the shares of property developers—is not doing well, there are many other industry sector choices. If an economy has problems with its exports and is only growing because of domestic spending, perhaps, the retail-service companies will see higher profits and, therefore, higher stock prices.

An investment in shares is always liquid even if conditions warrant selling out at a loss. At least you do not need to go out and find a buyer when you need to turn your investment into cash. Long-term investors in a growing country like the Philippines may not only benefit from higher share prices, but also from the dividends that companies pay as their profits grow larger.

So, once again, as I have said several times in the past, return to the discussion of why Filipinos seem to be adverse to investing in the stock market even after years of promotion by the stockbrokers, the stock exchange and the banks.

In the age of the Internet, knowledge about the stock market and how it functions does not seem to hold up anymore. Anyone who has the capital for a stock investment certainly has the access to all the information they need to begin investing. Stockbrokers will practically come out to your house to explain stock investing like someone trying to sell life insurance.

We talk about the fact that people are worried about being cheated by stock manipulation. We talk about the “Old Boys’ Club” mentality of the exchange. Everyone has a story about someone’s brother-in-law that lost a fortune in the stock market. But after some reflection, I do not think any of those are the real issues that keep the stock market to the “1 percent.”

I have been in the stock market since I was a teenager and have continued to be there for the last 50 years. Now you might think that with all the literally dozens of financial literacy gurus out there talking about stock-market investing, we would have seen a larger proportion of the Philippine population investing in the stock market. But the numbers, percentage-wise, are almost the same today as 20 years ago.

I learned about the stock market because my father was an investor and his father was, too. It would seem that the people attending all the seminars about stock-market investing are not only new to the idea themselves, but the vast majority come from families that are not stock-market investors also.

I do know some middle-aged investors that strongly encourage, if not force, their twenty-something children to learn about the market. But most of the middle-aged ones come from families that were not investors either. Certainly in 10 years or more, as the ones that are now attending investment seminars have children that become adults, those children will be more prone to invest. But it seems that those in the forty-plus age group that have the money are not in the market. Their parents were probably not investors because when their parents were in their 40s, we really did not have a genuine stock market here in the Philippines. The middle-agers did not learn stock investing when they were in their 20s.

I think I will have a stock-market investing seminar, called “Teaching Old Dogs New Tricks.” And if you were born after 1975, sorry you can’t come.

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E-mail me at [email protected] 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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3 COMMENTS

  1. As you are aware only 10-15% public ownership is sold by the listed companies and this as you very well know is subject to Manipulation by the rest of the 85% owners through various proxies. The Major proxies being the Stockbrokers themselves who get commission irrespective of whether the stock market is going up or down (I am sure you are on the board of many of these stockbroking firms).
    In countries like India, ownership of companies having National Security Concerns like Water and Electricity as well as Mass Transit is at least 25% held by the Central Government and is subject to rigorous scrutiny, and the public is not held at ransom.
    Moreover, it is the Chinese Filipinos who although they say they are Filipinos, but are a close knit community and will only do business with their kind who own businesses which are sucking the hard earned dollars which are earned by the OFWs and becoming rich (fact the Forbes list).
    To top it all up 30% tax deducted at sources from salaries and 12% VAT leaves the common Juan with no surplus income to invest in the Stock Market. The quandary is starve now and invest in the future, of which you are not certain, as past outcomes are historically not a good indicator of the future.
    The question here is not why only 1% of the Filipinos invest in the stock market, but why the free float is only 10-15% and not 49%. The simple answer is companies don’t want to sell the goose which lays the golden eggs, and only want to sell the golden eggs. And therefore the listed companies are least concerned if 1% or 0% Filipinos are invested, they themselves are living like kings, so let the peasants suffer or eat cake with the money they have earned overseas and make us Chinese-Filipinos rich. By the way Pres Aquino is Chinese-Filipino.

  2. I can only speak for myself. When I started earning money (with surplus) as an OFW in 1982, I wanted to invest some in the stock market. However, since I am in the province I found it too much hassle to go to Manila just to invest in the stock market. That is basically the reason why I am not into stocks. If there are millions like me in the provinces, it is up to the PSE to motivate these people.