Interview: Jose Pardo
How can the ASEAN Corporate Governance Score-card (ACGS) accelerate the establishment of an SEAN integrated market?
JOSE PARDO: The objective of integrating these economies is not an easy task. With nearly 600m people, ASEAN is indeed an attractive proposition. Over time, government functionaries and private sector business groups have aligned themselves in terms of networks and trade associations. This formation of ASEAN networks inevitably creates standards to measure how one should pursue work, and governance becomes a common trend. One noteworthy initiative is ACGS, which enables the formation of an integrated capital market by ranking the corporate governance of publicly listed companies within ASEAN and encouraging cross-trading among investable firms.
In the case of the PSE, we are committed to the highest level of corporate governance, transparency and integrity. We have also pushed for inclusivity so that growth is not limited to one sector. In tandem with higher levels of accountability and transparency, we are now about to start our fourth year of the Bell Awards, which identify companies, trading participants and stockbrokers that excel. Within the next two to three years, we will be able to identify companies that are consistent in their standards and add them permanently to our corporate governance board.
How can the PSE encourage the inclusion of Visayas, Mindanao or other non-traditional investors?
PARDO: The goal of the PSE has long been to expand the investor base. Whereas previously we had half a million private investors, our goal is to reach the 3m mark by expanding nationwide beyond Metro Manila.
The PSE has already extended its footprint into Visayas, with a regional office in Cebu. To encourage Muslim investors, who are mostly based in Mindanao, we have a list of sharia-compliant firms that they can look at. The PSE’s decentralisation trend has largely been based on urban centres, where growth originates. However, as we see expansion in provincial centres, we respond to market realities and seek out areas where we can potentially sustain our presence. The exchange has done extremely well compared to our peers, and the best is yet to come.
What else can be done to expand access to capital markets for medium-sized enterprises and nontraditional economic sectors?
PARDO: The goal is to attract new investors and protect them, especially those who are salaried workers, have modest investable funds and have a more conservative risk appetite. We have advocated for and are encouraging capital market players to launch new products that will ensure the safety of investments, such as principal protect type of mutual funds, which will preserve the investors’ principal even if a stock’s price falls.
Investors need to realise the availability of instruments catering to specific needs and concerns. Only then can they begin to learn how to hedge, read financial and economic data, and make judgments on whether a company represents a good prospect. Adhering to higher standards facilitates market education efforts, as it restores confidence in the investor market.
Other instruments that could further deepen capital markets in the Philippines are the Personal Equity and Retirement Account (PERA) law, which was enacted in 2008, and the real estate investment trust (REIT) law. The PERA law provides tax incentives for contributions and earnings of funds invested in various PERA-accredited products.
The law applying to REITs has already been issued; however, no company has yet registered due to some stringent provisions. For instance, the tax structure is deemed to not be competitive on a regional basis and the law includes a provision that requires REIT companies to have a 67% minimum public float on the third year of their rules listing. Due to this, property firms have turned to other funding sources, and amendments to the law would prove favourable for investors.
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