MANILA, Philippines – The local equities market needs stronger support from domestic investors, particularly in retail and institutional, to help cushion the impact of sharp swings during volatile times, according to BPI Capital Corp.
During the Annual Private Equity & Venture Forum recently, BPI Capital co-head for investment banking Reginaldo Cariaso said the Philippine equity market was still dominated by foreign institutions, making it vulnerable when foreign funds come and go.
“The market dries up when foreign funds go,” he said.
At present, more than 50 percent of the liquidity in the market comes from foreign investors.
“Majority of the liquidity is really foreign driven. It’s more than 50 percent so when foreign fund flows out, it has a big impact on the overall liquidity of the market,” Cariaso said.
Cariaso said that while foreign funds were necessary to keep the market healthy, the ideal situation would be for domestic investors to account for a bigger share.
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“What we should strive for is to really have a market that is strongly supported by the domestic market, both retail and institutional. It’s not to say we don’t want the foreign markets to be there in fact we need them but I want the domestic market to grow much bigger and faster than the foreign markets,” he explained.
A situation like this would pave the way for a market that is more conducive to investment deals.
“It allows deals to be done even when the market is volatile. It would also help bring in foreign investors because when the market is liquid they’re more confident bringing in capital because they know they have a mechanism and that they don’t have to wait to get out if they want to,” Cariaso said.
The local stock market, however, continues to be plagued by foreign selling.
From Aug. 15 to the end of last week, the market has seen P31.9 billion in net foreign selling.
Last week marked the fifth straight week of foreign outflows as global investors continued to wait for a policy action from the US Federal Reserve.
Many analysts believe the US Fed will keep rates steady and postpone a rate hike until December given the recent data on slower employment growth in the US.
Victor Felix, equity analyst at AB Capital Securities Inc., said the political noise on the domestic front is also affecting the investing community.
“President Duterte’s headline-grabbing rhetoric adds political risk,” he said.