The Philippines is being encouraged to be more active in the
three-phased implementation plan of the Asean Capital Markets Forum (ACMF) to
promote Asean as an asset class and convert the region’s relatively small and
limited range of products into a liquid, broader market.
Asian Development Bank (ADB)
senior financial sector specialist for Southeast Asia Stephen R. Schuster says
regional capital market integration will not only increase the size of the
local and regional markets but open these up to more diversity of investment
instruments and access to advanced infrastructure.
“Given the large capital flows
into Asia, this is indeed a timely opportunity to refresh our discussions on
capital market development. Without a reason to stay, these capital flows
introduce increasing volatility to the region,” he tells members of the Fund
Managers Association of the Philippines in the 7th Philippine Forum forum
co-hosted by The Asset in Manila on September 25.
The ADB has been consistent and
active in its support of the Philippine capital market development since these
funds will eventually finance infrastructure projects. Financial sector
assistance has been constantly under review beginning 2008 and this focussed on
domestic bond markets and in helping the local government to establish an
effective regulatory environment.
It all boils down to poverty
alleviation, which is ADB’s main mission. “ADB believes financial sector
development can help achieve that goal,” remarks Schuster. Financial sector
development reduces poverty through at least three channels, he says, and these
are indirectly through economic growth, directly by providing access to finance
for the poor, and through financial sector stability.
“We believe the development of
domestic capital markets, and increasing the linkages between them represents a
mitigant to volatility and a means to support the infrastructure needs of the
region, and a means to raise incomes and reduce poverty,” he remarks.
Within Asean, ADB has farmed out
assistance to grow capital markets and financial sectors at the country level,
but at the core of its agenda is to promote regional capital market
integration.
Schuster lists the benefits for
the Philippine participation to the ACMF, which is currently on the second
phase of a three-phased implementation plan (2011-2012) and the third phase is
2013-2015. By 2015, the Asean Economic Community will become a reality.
Regional capital market integration
will harmonize disclosure standards, stock exchanges trading link, better legal
framework for cross border disputes, strong regional corporate governance
framework, as well as improve regional economic cooperation.
“Harmonized disclosure standards actually
bring investors to smaller markets in Asean,” he explains. “Once an issuer has
issued securities in Singapore/Malaysia, they can use the same prospectus to
issue in other countries including Philippines. This makes it cost efficient
for issuer who otherwise may not invest beyond Asean’d top 3.”
Schuster says the Philippine
Stock Exchange as a participant of the Asean exchanges trading link will also
allow smaller brokers access to foreign securities and give investors a wider
choice of products. “Brokers in the Philippines can sell their customers
equities from, for example Thailand and Singapore. Foreign investors will also
have better access to Philippines securities which means attracting more
foreign capital.”
Other benefits include the Philippines
leveraging on developed legal framework to resolve cross border disputes.
“[There’s access to] enforcement mechanism to provide protection to local
investors,” says Schuster. “Investor protection should be an important mandate
for any SEC (Securities and Exchange Commission).
He notes that listed companies in
the Philippines are already known for their strong corporate governance
standards. “However, participation in the Asean corporate governance initiative
will allow Philippines PLCs (publicly listed companies) to measure themselves
against PLCs in other Asean countries, improve corporate governance and strive
for international standards beyond the requirements of local regulations.”
Another perk to regional
integration is that member nations will have the resources to build capacity
collectively, adds Schuster, while increasing regional cooperation through
sharing of information.
ADB, as a multilateral funding
agency, assists by helping governments and private sectors to develop capital
market master plans. This is done through direct technical assistance to
enhance legal and regulatory frameworks, taxation and the governing rules on
the issuance of debt and equity.
For the Philippines, it has
recently decided to support initiatives for the PERA or personal equity and
retirement account. The PERA law was approved in 2008 and is one of the major
capital market reforms in the last 10 years.
“ADB plans to support the
introduction of PERA in the Philippines by funding the acquisition of hardware
and software development,” Schuster reveals during the forum.
Lee Chipongian
Business & Investment Opportunities
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