Have you ever noticed how little you hear about the Philippines market in these days? When was the last time you heard about a hot stock tip from that country?
The Philippines contains a lot of people, about 72 million in fact, and it also has reasonably good resources in terms of land, people, and education. It has also received a significant amount of aid from the U.S. over the years. But whatever positives the country can point to, the Philippines also has to admit to a long history of corruption, cronyism, and economic mismanagement which has restrained its progress (who can forget Imelda Marcos’ shoe collection?).
The sad reality is, economic growth in the Philippines has lagged behind the rest of Asia for decades. Investors, perceiving neither strong economic growth nor a clean or fair market, have typically ignored the island nation’ s stock market, considering it not worth the risk.
Just last month, an event gave investors even more evidence that buying stocks in the Philippines isn’t worth it. The man responsible for stock market compliance on the Philippines Stock Exchange, Ruben Almadro, and his entire 17-member team, resigned en masse to protest the handling of a stock manipulation probe they were performing. Almadro’s team was angered by what he called “sham deliberations” to clear brokers who he said had manipulated the shares of a small casino company, helping its stock to rise as much as +5,300 percent last year.
“This drift to the Old Boys Club has created an unhealthy work environment which runs counter to my personal values and beliefs,” Almadro said.
The departure of the compliance team precipitated a crisis in the markets after the Philippine SEC Chairman Perfecto Yasay responded by ordering the closure of the stock market — an order that was overruled by fellow executives, with the support of the government. As a result of this, President Estrada, at the urging of the stock exchange executives, appeared to have taken steps to replace Yasay with someone who might cause less trouble.
Can we really fault international investors for once again suspecting cronyism and corruption in the Philippines? I don’t think so. The most recent episode only serves to reawaken uncertainties about that market’s stability, its fairness, and the independence of its regulators. While the truth about the latest incident may never be known, many will simply assume that a politically connected crook got caught in stock fraud and was rescued by his government buddies who care just as little about the rule of law or justice.
How does all this add up for the Philippines? In 1999, the country’s stock market was the worst performing major market in Asia, up only a few percent in US dollar terms. Sri Lanka was worse, but the fact is that even the most die-hard emerging markets investors avoid that market. The Philippines is doing even worse in 2000, already down as much as -25% in dollar terms, and I think it’s safe to say that, if conditions don’t start improving soon in the country, global investors could soon write it off as too risky, too opaque, and too small to ever consider for investment.
