Wednesday, January 28, 2015


By now, giant companies mostly listed in the stock exchange must have raised hundreds of billions of pesos in new capital from the public. If the state of the economy had not been nearly ideal, these companies would have borrowed the money from the banks, incurred interest costs and raised operating expense that had to be  recovered from   consumers. 

These companies are able to raise money for expansion through public offerings. By and large they do not borrow for operating needs. The fact that they pay fairly regular cash dividends to their stockholders is proof they are able to generate enough operating capital.

They borrow from the public without collaterals. The public investors gobble up the offerings guided almost solely by the past and continuing declaration of cash dividends to the stockholders.

The investors must have figured out that a company that pays regular quarterly cash dividends is a better option than fixed-income securities which the market also gobbles up obviously for safety, preferred over lower yields.

The market is looking for safe instruments that provide reasonable incomes in the face of attendant risks in shares of stocks. The risks have nearly completely disappeared as shown by rising domestic liquidity created by confidence in the market. 

There are indications investors prefer offerings while trading their long tenor bonds at market-determined prices made possible by open competition — instead of bilateral negations as was the practice before the Philippine Dealing Exchange was established. Prices of fixed income securities are market determined in transparent operation. Unless so stated, in preferred shares of stocks, the offerings do not have guaranteed yields. Yet investors take the risk. 

Confidence in public equities has never been this high. The records in the past four years show there is reason to trust shares of stocks without too much fear of risks. Hundreds of listed companies have paid their stockholders regular dividends amounting to hundreds of billions of pesos in the past years. There is profit to share with the investors as proven by announcements of increasing quarterly or annual incomes. 

We have no information on the extent of hot or portfolio money invested in shares of stocks. This money accounts for an estimated 50 percent of domestic liquidity. 

The public offerings raise domestic liquidity that in turn makes for longer-term stability of the market. 

The consumer-led growth is at full throttle in spite of the fact that unemployment and under-employment remain a major problem. This is the driving force that makes many listed companies extremely profitable.

Two of the better indicators of what appears to be growth phenomena are the mushrooming of apartment buildings nearly everywhere including highly urbanized provinces like Cebu and Davao. 

The developers do not seem to see a saturation point. 

This is apart from the fact that investors cannot seem to lay their hands on shares in public offerings. There is rising domestic liquidity that makes for longer term stability. 

The other side of the equation is the fact that banks find themselves competing with companies offering shares to the public. To the extent of the amounts offered to the public, the banks are denied lending loans.

Finding that loan demand is not as heavy as in previous years, the banks are forced to come up with non-bank products. They probably make as much in fees as they did from interest incomes, without risks.

There are no default risks in selling non-bank products. This is one big factor that draws away the banks from the possibility of grappling with troubles over big defaulting loans.

There is hardly any risk in fee-based operations. The products would not find demand if they have not been turning in   reasonable yields far higher than what bonds give over longer tenor. 

The rules on say, mutual funds offered by the banks are tight. Tight or not, competition dictates deep selection of investments in the mutual fund basket. The banks are increasing their long-term exposures in deeply selected shares of stocks. 

The first consideration is dividend-paying history. Investments in these shares can earn money in either of two ways, from cash or stock dividends or from price appreciation.

Learning the lessons from the collapse of the home mortgage market in the United States, the Filipino investors like the rest in the world continue to take the flight to safety. 

That is the principal reason sovereign liabilities — treasuries and bonds — are always oversubscribed even if the yields are low. 

The fact that debt and interest payments of the national government are remarkably smaller compared to previous periods attests to financial stability. The Aquino government cannot seem to spend enough in the face of mountains of cash. 

There is too much cash.   There are not that many instruments that give high yields. The investors then take to shares of stocks.

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