The stock market is a crucial component of a country’s economy, serving as a barometer for its financial health and a platform for businesses to raise capital. In the Philippines, the stock market operates through the Philippine Stock Exchange (PSE), which is one of the oldest stock exchanges in Asia. Understanding how the stock market works in the Philippines can provide valuable insights into investment opportunities, economic trends, and the overall financial landscape of the country.

Understanding the Stock Market

At its core, the stock market is a marketplace where securities such as stocks and bonds are bought and sold. Stocks represent ownership shares in a company, while bonds are debt instruments that companies or governments issue to raise money. Investors buy stocks with the hope that their value will increase over time, allowing them to sell at a profit. Conversely, bonds are purchased for their interest income and relative safety compared to stocks.

The PSE, located in Metro Manila, is the central hub for stock trading in the Philippines. It facilitates the buying and selling of stocks through a network of brokers and electronic trading platforms. The PSE is regulated by the Securities and Exchange Commission (SEC), ensuring that trading practices are fair and transparent, protecting both investors and the integrity of the market.

How the Philippine Stock Market Works

1. Listing of Companies

For a company to trade its shares on the PSE, it must first go through an Initial Public Offering (IPO). During an IPO, the company offers a portion of its shares to the public for the first time. This process involves rigorous regulatory scrutiny to ensure the company’s financial health and compliance with market regulations. Once listed, the company’s shares can be freely traded among investors.

2. Trading Process

Trading on the PSE occurs through an electronic system known as the PSEtrade XTS. This system matches buy and sell orders from investors. Trading sessions typically run from Monday to Friday, with a pre-opening period starting at 9:00 AM and the regular trading session from 9:30 AM to 3:30 PM. The market is closed on weekends and public holidays.

3. Role of Brokers

Investors cannot directly trade stocks on the PSE; they must go through licensed brokers. These brokers act as intermediaries, executing buy or sell orders on behalf of their clients. Investors can place orders through various channels, including online trading platforms, phone, or in person. Brokers charge a commission for their services, which is usually a percentage of the transaction value.

4. Market Indices

The performance of the Philippine stock market is often gauged using indices, with the PSE Composite Index (PSEi) being the most prominent. The PSEi tracks the performance of the top 30 publicly traded companies in the country, providing a snapshot of the market’s overall health. Other indices, such as the All Shares Index and sectoral indices, track broader segments of the market.

Benefits of Investing in the Stock Market

1. Wealth Accumulation

One of the primary motivations for investing in the stock market is the potential for wealth accumulation. Historically, stocks have provided higher returns compared to other asset classes such as bonds or savings accounts. By investing in a diversified portfolio of stocks, investors can benefit from capital appreciation and dividend income.

2. Ownership in Companies

When investors buy shares, they become part-owners of the company. This ownership entitles them to a portion of the company’s profits, typically distributed as dividends. Additionally, shareholders have voting rights in major company decisions, such as electing the board of directors.

3. Liquidity

The stock market offers liquidity, meaning investors can easily buy or sell their shares. This liquidity is essential for managing investment portfolios and responding to market conditions. Unlike real estate or other illiquid investments, stocks can be quickly converted to cash.

Risks and Considerations

1. Market Volatility

Stock prices can be highly volatile, influenced by a myriad of factors including economic data, corporate earnings, geopolitical events, and market sentiment. This volatility can result in significant short-term losses, making it essential for investors to have a long-term perspective and risk tolerance.

2. Company Performance

The value of stocks is directly tied to the performance of the underlying companies. Poor management decisions, competitive pressures, and economic downturns can negatively impact a company’s stock price. Therefore, thorough research and analysis are crucial before making investment decisions.

3. Regulatory and Economic Factors

Changes in government policies, tax laws, and economic conditions can affect the stock market. For example, changes in interest rates or inflation can influence investor behavior and stock prices. Keeping abreast of economic indicators and regulatory changes is vital for informed investing.

Investing in the Philippine Stock Market

1. Getting Started

To start investing in the Philippine stock market, individuals need to open an account with a PSE-accredited broker. Many brokers offer online platforms that provide access to market data, research reports, and trading tools. Investors should assess their financial goals, risk tolerance, and investment horizon before making decisions.

2. Diversification

Diversification is a key strategy to mitigate risk in stock market investing. By spreading investments across various sectors and companies, investors can reduce the impact of poor performance in any single stock. Exchange-traded funds (ETFs) and mutual funds are popular vehicles for achieving diversification.

3. Continuous Learning

The stock market is dynamic, with constant changes and new developments. Continuous learning and staying informed about market trends, company news, and economic indicators are essential for successful investing. Many brokers and financial institutions offer educational resources and seminars to help investors build their knowledge.

The stock market in the Philippines, anchored by the Philippine Stock Exchange, plays a vital role in the country’s economic development. It provides a platform for companies to raise capital and for investors to build wealth. While investing in the stock market carries risks, a well-informed and strategic approach can lead to significant financial rewards. By understanding how the stock market works and staying informed about market trends, investors can navigate the complexities of the financial landscape and achieve their investment goals.

There has been a rise in the interest of Filipinos with regard to stock market investing. Financial advisers often recommend stocks to be in one’s portfolio and for a good reason, it has given the investor good returns for sometime now. However, stocks are also one of the most volatile investments and many have ‘lost their shirt’ in the stock market, so to speak.

Are we seeing a continued bull run in the Philippine Stock Market for 2015? Marvin Germo, one of the country’s most popular stock market enthusiast shares his views on where the market is heading for 2015.

The 2015 Outlook of Marvin Germo

I love watching basketball. I love the part where the underdog, who has been trailing massively in the first 3 quarters start to turn things around and shift things toward their favor. I just love seeing that sight, to see people who have been battered and forgotten move forward and shift from losing to wining.

I believe that this is what is happening in the Philippines. I believe we are surging like never before. The economy may not be perfect and there are things that I think still need to be changed. But like the basketball team I know we are moving up instead of falling down. All the cards are stacking right towards our favor.

What has changed?

1. Our GDP is still strong, relatively higher than most of our peers in region and also as compared to its historic average. The economy was flying prior to Yolanda but it slowed down a bit in 2014 due to its effects of the typhoon. But I believe this year our economy would pick up further. Our GDP is still and will be consumption driven, this means that as more Filipinos spend our economy would grow as a whole.

2. Two years ago we moved from speculative to investment grade but not just that over the past few months we have proven that we can go higher than that as evidenced by more and more upgrades.

3. Inflation is still low, as oil prices continue to drop worldwide, I believe this would further slow down inflation in the country.

4. Interest rates are also low, this means more people are taking loans. More loans allow other sectors in the country to grow. In spite of more people taking loans our Non Performing Loans ratio is still relatively low, this means that people are paying their loans and not defaulting on them. As interest rates are low, this also means more liquidity in the market. It shows that more people would be taking more risks to get more gains. This is good for people involved in stocks and equity funds.

5. We are the top 23rd in the world in gold reserves and top 25th in US dollar reserves beating other 1st world countries.

6. Our unemployment rate is relatively lower, meaning more jobs are being created for our countrymen but aside from that we are seeing also more OFW remittances that help energize our consumption driven economy.

7. More money is also heading the government’s way as they are now able to collect taxes more effectively, which in theory can be used to further our economy.

8. Aside from this our debt to GDP ratio also has continued to drop.

I could go on and on about how things are doing well for our country. However as what I mentioned it is not a perfect economy and certain adjustments need to be made.

What needs Improvement?

1. I believe the government still needs to increase spending and infrastructure spending needs to be a priority. More infrastructures built would bolster business, tourism, and make growth inclusive to everyone.

2. We also need to see more foreign direct investments that will create real jobs and not just money flowing in and out of the stock market.

How does this fit our investments?

Given that interest rates are still low and there is so much money moving around. I believe equities would still take the helm this year. If you are an investor try to align your investments with anything that is related to stocks. Either via direct stock investing or via an equity fund.

Will the PSEI hit 8,000?

I believe no one has a crystal ball to determine where the market will go. Stocks over the short term still move with respect to sentiment and supply & demand. However, given the fact that the fundamentals of the Philippines remain to be amazing, I believe its not a question if the PSEI will hit 8,000 but rather a question of when.

Also as an investor, you should ask your self the question, should the market hit 8,000, would you be buying, holding, or selling? The technique to earning in the market is by having your own strategy and sticking to it.

If you who want to maximize the growth of our economy, I suggest to invest in stocks that are consumer related (Read: Stocks and our Consumption Driven Economy) or if you are entrepreneurial create businesses that will cater to consumption. At the end of the day as more Filipinos spend businesses aligned to consumption will produce more earnings. In stocks, stock prices follow earnings that move up.

Is our market relatively higher?

Yes it is. The PSEI is more expensive compared to other foreign markets in the region. This means that more investors may be more cautious to come in and may wait for the market to go a bit lower before they start investing.

As our market is relatively higher and for those who are a bit more conservative, you may still go for stocks. However, go for stocks that give higher dividends and are less volatile. This is so if the market would correct you still get your dividends and you don’t get hit much by the volatility.

Technicals

On a technical analysis level the market is still in a good uptrend from its reversal in 2009. The 200 day moving average support (as of this writing) is at 6,960. As long as we stay above the 200 day moving average I believe the market can still push up further, however if this breaks downward, you may consider taking profits.

While as of this writing, the peak of 7,400 has been broken twice this year. What I would like to see is that the PSEI stays above 7,400 and builds a support there. If 7,400 holds, over the short term we may see the market move towards 7,600 then eventually 7,800. After that the road to 8,000 doesn’t seem so far off.

Will the market move up on a straight line up? Not necessarily! As always markets drop, when majority of investors take profits. You may also want to consider that the PSEI has been more than 27% up since the start of 2014 and a lot of investors are also waiting for a proper time to take profits.

At the end of the day, it is you as an investor who will make the decision on what to do and how to trade your portfolio. If you are a trader stick to your technical analysis and your trading plan. If you are an investor buy reasonably priced stocks that are cheap, growing and stick your fundamental analysis.

If you are investing in equity funds, either via UITFs or Mutual Funds stick to your financial plan. Don’t just take out funds because of emotion and just because the market is super high or low. Stick to your fund knowing that your fund manager knows what they are doing and that’s the reason why you are invested with them in the first place. Only take money out when your plan or goal has been hit.

At the end of the day I believe 2015 will be a great year for you as an investor. The Philippine economy which used to be an underdog is reversing, moving forward and surging higher. It’s time to be invested and to take part of the progress. God has great plans for you to prosper and to succeed in life. It’s time for you to step into them!

Have a great 2015 ahead!

Marvin Germo is an engineer by education and a Registered Financial Planner. He is one of the country’s most prolific stock market enthusiast and an advocate of stock market education. He is the author of two best selling books  (Stock Smarts) on the stock market, a columnist for Business Mirror and Rappler and speaks locally and globally.

There has been a lot of attention with regard to the Philippine stock market today than it was a few years ago. Thanks to great performance of the Philippine stock market, more people are opened in growing their wealth through equity investing. Will the rally of the past continue in 2015?

I am proud to present the 2015 Outlook of a former co-worker, a stock market advocate and the person behind the growing Traders Apprentice Pilipinas (TAP) — Mr. Tony Herbosa!

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The 2015 Outlook of Tony Herbosa

2015 is “make or break” year and we do not really know moving forward.

As of today, I have been consistent that we are on the final stages of a bull market rally that started in 2009, specifically that we are on Wave5. For most of 2014, this view that mostly “greed stocks” move on a wave5 rally vs. “Index stocks or heavyweights” was confirmed specifically in nickel plays ($NIKl, $Marc, $Ore, $CMT volume), gaming ($LrW, $PLC, $Bloom) and some property stocks like $MEG that still climbed in 2014. As we ended the year, a few IPO’s even sucked the liquidity out of the directionless PSE/market causing a retest of the 7,000 critical floor.

The US$ is expected to be stronger which is not bullish on Emerging Markets or EMs ($EEM) in general and it never happened that weakening peso, medium term, was bullish on the PSEi. My advice, we break 7,400 then the issue of “global de-leveraging” is postponed and the would signal the continuation of our Wave5 rally for most of 2015. If we do not break 7,400 in next two to three months something is very off. This has nothing to do with how the PHL economy is doing. This is all about the global shifting of funds, either foreign money stay in EMs, be selective with EM currencies or stocks which are strong like EM-PHL vs. EM-Argentina, or mainly leave for US$ assets. Already global investors are moving to risk-less US treasuries, not good.

My advice: I would get out of stocks if we go below 7,000 once again if not focus on just a few nickel stocks which will be spared given global nickel projections/prices for 2015. But the PSEi is less predictable in 2015, given foreign funds make up 60% plus of our trading. The ground is somewhat shaky underneath.

With more than 2 decades in the financial industry, Tony Herbosa is one of the country’s most active and noticeable stock market advocates. With an MBA from the prestigious Wharton School in the U.S., Tony has worked for many financial institutions both here and in the U.S. such as Citibank, Solomon, PCI Bank, Ernst & Young, and as CEO of PNB Capital. Tony is the influential person behind one of the most active stock market education forums in the country today, the TAP. Tony Herbosa has been actively engaged with the Philippine Stock Market since 1992.