AFTER a nearly three-decade wait, traders will finally be able to short-sell stocks in the Philippines.
A total of 52 stocks and one exchange-traded fund, including all the equities on the benchmark gauge, will be available for short selling on Monday after regulators signed off on a proposal first made by the Philippine Stock Exchange, Inc. (PSE) in 1996.
“Without short selling or any index futures, we will be a long-only market, so if there’s uncertainty on the economy, the political situation or even in emerging markets, they will all sell,” PSE President Ramon S. Monzon said in an interview. “With short selling, they can stay here and hedge,” he said, referring to foreign investors.
The Philippines is embracing short selling just when regional peers such as China and South Korea are tightening control over it with emerging markets under pressure from higher US rates. Mr. Monzon is seeking to revive interest in a market where average daily stock transactions have slumped by almost 40% in the past decade, and foreign equity investments are set to shrink for a sixth year.
“It’s definitely a step in the right direction and about time,” said Conrado Bate, president at COL Financial Group, Inc., the nation’s biggest online stock brokerage. It will take time for investors and brokers to be familiar with shorting equities, he added.
For the debut, the Philippine Depository and Trust Corp. is the only licensed lending agent that can provide shares that it does not own for short selling. Other brokers can lend out shares that they own to clients or borrow stocks that they do not have from the depository for a fee.
LIQUIDITY FEARS
Brokers will be able to lend out shares that they don’t own to other borrowers once they have their own lending permits. To do that, they need monitoring systems to track the shares. But brokers aren’t in a rush to become lending agents due to the costs required, according to Alex Dauz, president at Maybank Securities’ Philippine unit.
The benchmark has declined nearly 9% in 2023, among the worst performers in Asia. Foreigners have withdrawn nearly $6 billion from the country’s equity markets since 2018.
The ability to short-sell may not be enough to lure back global funds. “Liquidity has been one of the key constraints to foreign investors to build large positions in the Philippines stock market,” said Ernest Chew, portfolio manager for Southeast Asia equities at BNP Paribas Asset Management.
“Short selling might cause more unfavorable volatility particularly in a market with lower liquidity,” he said. — Bloomberg
