Interview: Cecilia Tan

What has been the response to recent efforts to boost trading at the bourse, including the decision to begin afternoon trading in January 2012?

CECILLIA TAN: The market response has been generally positive. Investors acknowledge that there may be some stumbling at the onset, but that overall, the moves are in the right direction. The initiative to extend trading hours is an attempt to align the Philippines with regional trading bourses as Asia Pacific moves closer to becoming one regional market. We are hoping that the eventual move towards an overlap with London trading time will initiate more activity on the bourse.

Such an overlap would also give regional investors more of an opportunity to act in real time to movements in the global markets. On the equities front, the stock exchange is working to improve its system to enhance the product range and volume capacity. The ASEAN market linkage will provide a common electronic gateway to other ASEAN exchanges to promote cross-border trading. As retail investors become increasingly aware of the products and services available to them, they may even start to look at international markets. This is expected to be supported by an overall increase in the number of equity traders.

Additionally, one aspect of the “Level Up” programme initiated at the bourse is the relaxation of rules on the required track record of companies operating in certain industries, allowing such firms to raise equity capital at an earlier stage in their operations. This aspect is particularly relevant for businesses that have delayed returns yet require significant upfront capital, but at the same time have proven potential. Such an approach could be taken to mining companies that are still in the exploratory stages but have proven reserves.

To what extent is the recent rise in corporate fundraising indicative of renewed mergers and acquisitions and expansion activity?

TAN: The rise in corporate fundraising is certainly a good indicator of economic activity, whether for acquisition, new ventures or the expansion of existing businesses. There are increasing opportunities in energy, both traditional and renewable, telecommunications and broadband, real estate, and business process outsourcing. Companies have been building up cash and capital reserves in order to take advantage of acquisition opportunities more quickly. Companies are expected to increasingly turn to the capital markets to raise funds to complement traditional sources of funding.

The depth and breadth of capital markets has also enabled companies to structure financing schemes that best suit their particular needs. Historically low interest rates, which are expected to remain for some time, have likewise been favourable for fundraising. On the buy side, investors have simply become more interested in the capital markets in the Philippines. Furthermore, investors are increasingly accepting longer tenures for issues as more Filipino companies have established track records of success.

How do you see local investor sophistication developing in the coming years? What role is there for derivatives and other financial instruments?

TAN: While additional sophistication is anticipated, it is all relative, as the Filipino investor has traditionally been more conservative, interested in absolute returns as well as the mitigation of risk.

We do see the potential for interest in the use of derivatives, including credit, interest rate and currency swaps, for hedging purposes. However, these types of instruments had been prone to misuse, as shown by the recent recession, and thus will require the maturity of both the market and regulators. In regard to fixed income, retail investors are now more open to longer-tenured investments and to corporate securities.

Recent retail treasury bond issuances have featured longer tenures, which indicates increased investor sophistication in the Philippines. It is also anticipated that longer-tenure corporate issuances will come on the back of successful retail treasury bond issuances.