PSE Must Demutualize

The local stock market needs drastic reforms to win back foreign investors. It has lost so much credibility in the wake of the BW fiasco, investors will also now worry about the uneven playing field. Bad as BW was, the manner by which the PSE governors reacted to protect themselves rather than to let the chips fall where they may, has contributed to further erosion of confidence in the local market.

It is bad enough that the negative perception of the Erap administration has diminished the desirability of our market. We now have to contend with the image of a market that is characterized by insider trading, stock manipulation and cover-ups. It didn't help that PSE's Board of Governors dominated by brokers, have negated what initially looked like an earnest effort to uncover the guilty ones, at long last. Appointing an old war horse from the old Binondo days compounds the credibility problem of the exchange, because of the perception he brings, whether justified or not.

It seems the only remedy is to quickly demutualize the PSE. I understand even President Estrada is convinced this is the only solution to make the local bourse regain its credibility. This means ownership of the PSE will be opened up to the public. Brokers will be limited to at most 30 percent. The Board of Governors will have more non brokers, a reversal of the current situation.

What happened over the past few weeks showed the PSE is not ready to be a self regulatory organization. When push comes to shove, they are not ready to uphold principles over self interest. Actually, it does not make sense to have all those brokers in the Board of Governors and expect them to regulate themselves. It is just like having the Board of the Bankers Association as our Monetary Board. Ridiculous. The conflict of interest is so blatant.

If the administration and Congress know what is good for the market, they will move quickly to have the enabling legislation passed right away to drastically overhaul the structure of the PSE. Maybe it could be made a part of the revised Securities law that is still being considered by the House. The conference committee can be the venue to update the Senate version that had already been passed. Only a total overhaul of the exchange will do.

Now, even the profitable blue chips are at bargain basement prices. This is because of the double whammy of the administration's lack of credibility with foreign fund managers and the PSE's inept handling of the BW fiasco. The editorial of the Asian Wall Street Journal echoes the sentiment of foreign fund managers and that's really worrisome.

BIR chief Daky Fonacier told us last week that Danding Cojuangco was confident San Miguel would deliver a 30-percent increase in profits for this year. Yet, the price of San Miguel shares in the stock market has been going down. For a while, the price of San Miguel B shares bought by foreigners, was lower than A shares. This dramatizes the departure of foreign fund managers. They no longer care about the soundness of a San Miguel share. They are more concerned about the widely held perception that the country is not worthy of their investments.

PLDT, despite, its overwhelming share in the local telecoms market, is also suffering the fate of the other blue chips. Ayala, despite its very profitable subsidiaries like Globe, BPI and Ayala Land, is now just at P8.30. Bargain hunters should be all over the market by now. But even bargain hunters are afraid the market has not reached bottom yet. Tempting as these blue chips may be now, their prices could still go down given market sentiment. I think the Phisix or the local stock market index is like President Erap's approval rating -- we always hope it has bottomed out only to find out it has established a new bottom still.

It seems people would much rather be liquid or invest in the underground economy rather than leave their money in a stock market.

They are just being realistic.

BSP Governor Paeng Buenaventura only said something that was obvious all along -- that PNB had been mismanaged. It is no secret that the bank had been easy prey for influential cronies of whoever is in power. Recall that in the early days of the Ramos administration, his qualifications of some his appointees in the Board of the bank had been questioned.

Now that we all know the bank also has the worse non-performing loan ratio among major banks, we just confirmed what we have suspected for some time. Of course, the bank lent money to presidential cronies who had no intention of paying back. PNB has always been a milking cow of sorts, a way of plundering the treasury and making it look legal.

I remember that during the Cory administration, they released a list of Marcos cronies who plundered the bank. Maybe, we should get an updated list that covers the Cory, Ramos and the Erap years. Embarrassing them in public is the only weapon we have left.

PNB's vulnerability to politicians is reason enough to totally privatize the bank. The taxpayer ends up footing the bill when they have to clean up the books as what happened when the bank was partially privatized during the Cory watch.

A reader, Ernie Siwa, sent me an e-mail expressing his view that we should not lose hope in these hard times and also, it is useless to complain. Here are portions of his e-mail, very timely food for thought from Mr. Siwa.

During these times, with gas prices and cost of living are rapidly rising, it is useless to complain because we have no control on them.

Even the mighty US president and other superpower countries can do nothing to arrest the increase in gas prices.

If we have no control of the prices, then I think we have to think how we can augment our present income by having multiple jobs and multiple sources of income. We can also limit our expenses by planting some vegetables (these are very expensive these days) even in pots so that we don't have to buy some of them.

Simplicity in our way of living will also mean simple spending. It is not how much money we earn but how much money we can save for our future because money begets money.

It is useless to complain to things that we have no control of but we have control in ourselves on how we can improve our way of life and cope in the present situation. Thank you very much and I hope that we should not lost our hearts for having a bright future.