False Start

Philippine Stock Exchange (PSE) is named as the Best Stock Exchange in Southeast Asia at the Marquee Awards of the Annual Best Deal and Solution Awards 2021 by institutional investment magazine Alpha Southeast Asia brought about by the record number of product introductions. In terms of deal size, PSE sets a new record of P234.48 billion in 2021 from an old record of P228.33 billion in 2012. In terms of asset classes, PSE handled 8 initial public offerings, 4 stock rights offerings, 11 follow on offerings and 7 private placements. Although the coronavirus infection rate continues to elevate while the mutation rate continues to escalate despite the availability and accessibility to vaccines, PSE managed to demonstrate an unarguable dedication and unwavering determination to uphold a mandate for the greatest good for the greatest number of investors. But an award or accolade granted as an honor or as an acknowledgment of merit would neither be relevant nor important whenever an awardee cannot deliver a promise. Trading rules state that PSE can stop the trading in the market if at least one-third of the trading participants cannot access the trading system. PSE canceled trading on the second trading day of the new year brought about by a technical glitch in which 43 out of 125 trading participants were unable to connect to its trading system. The technical glitch was blamed on problems encountered in establishing a connection between the NASDAQ trading engine and the Flextrade front-end system. Through the constant coordination and collaboration with the representatives of NASDAQ and Flextrade, PSE was able to determine and resolve the underlying cause of the problem and trading resumed without a technical glitch. Most market observers would argue that the trading and market participants neither gained nor lost a single centavo brought about by the technical glitch that resulted to the trading cancelation but there was an unquestionable opportunity cost. Although we neither have a truckload of cash to trade nor an avalanche of disclosures to read, trading and market participants were unable to enter or exit the market and lost the chance to take a reasonable level of risk in search of an acceptable rate of return. Perhaps PSE should have human resources with the appropriate professional experience, theoretical background and practical competencies to ensure that technical glitches would not force the trading and market participants to a false start.

Sweat Sugar

Public companies are required to observe strict compliance to the continuing disclosure requirements of the Philippine Stock Exchange (PSE) and make available and accessible the material non-public information through the submission of structured and unstructured disclosures that would enable investors to evaluate whether or not to invest in securities. To ensure that information asymmetry between the company insiders such as directors, managers and shareholders and company outsiders such as lenders, investors and customers would be mitigated if not eliminated, the material non-public information that can have a material impact on the operating and financial performance of public companies should be included in the disclosure requirements. The basic disclosure requirements on public companies are the submission of an annual report within 105 days after the end of the fiscal year and the quarterly reports within 45 days after the end of every quarter of the fiscal year. But these basic disclosure requirements are not basic for some public companies that cannot submit the periodic reports due to a broad range of unacceptable excuses that they blame on systematic risk or risk inherent to the market and unsystematic risk or risk specific to the company. One of the public companies whose shares were suspended from trading for failure to submit an annual report for the fiscal year ended 30 September 2021 is Bogo-Medellin Milling Company Inc (BMM). BMM was incorporated on 4 June 1928 to mill and manufacture raw sugar, to develop and nurture agricultural lands, and to harvest and market agricultural products. Before the submission of an annual report within 105 days after the end of the fiscal year lapses BMM had requested PSE for an extension of the filing deadline as its external auditors were in the process of reviewing the disclosure requirements to ensure that the financial statements are in accordance with the revisions and amendments to the reporting standards. How can the external auditors of the 272 listed companies in the PSE comply with the revisions and amendments to the reporting standards while the external auditors of BMM cannot? We believe that the basic disclosure requirements on public companies to submit an annual report within 105 days after the end of the fiscal year is more than enough for external auditors to comply with the revisions and amendments to the reporting standards. An argument to the contrary would be considered as a blatant excuse to conceal the worsening business operations and financial performance of BMM.

Apple Score

How unfortunate that most capital market stakeholders which include but not limited to the traders, analysts, investors, managers and regulators compared the business operations and financial performance of the public companies for the years ended 2019 and 2020 despite the unprecedented pandemic-driven economic crisis that wreaked havoc on business activities. How could someone with a rational investor mindset compare the pandemic-threatened 2019 with the pandemic-centric 2020? Although these years are poles apart and not comparable by any measurable metric or acceptable standard, most capital market stakeholders tolerated the sequential growth analysis without regard to the comparability of accounting information. Through the digital media platforms such as apps, blogs and websites and the traditional media platforms such as print, banner and broadcast, the financial press compared and reported the business operations and financial performance of the public companies for the years ended 2019 and 2020. Comparability refers to an accounting information quality that makes the financial statement comparable. An accounting information that is prepared using the same measurement procedures and reported using the same reportorial standards is considered comparable. Although the sequential growth analysis for the years ended 2019 and 2020 was prepared using the same measurement procedures and reported using the same reportorial standards, the results cannot be considered comparable. The pandemic-threatened 2019 should be considered as a normal period while the results should be considered as a normal growth but the pandemic-centric 2020 should be considered as an extraordinary period while the results should be considered as an extraordinary loss. The pandemic-centric 2020 was a period in which cost and expense mitigation and elimination were implemented to conserve cash position, manage debt obligations, renegotiate contract terms, reduce business operations, lower manpower headcount and suspend capital expenditures among others. Most public companies went on an unusual survival mode in which business operations were relegated to bare minimum rather than the usual competition mode in which business operations were geared to maximum capacity. Although the infectious disease and public health experts have been warning us for years that a pandemic involving an infectious respiratory disease virus is a plausible scenario, the low‐frequency and high‐impact characteristics of a pandemic makes it an extraordinary period that we should consider as an unpredictable event with adverse consequences. We believe that the pandemic-centric 2020 should not be considered in a sequential growth analysis to ensure an apples to apples rather than apples to oranges comparability of accounting information.

Duterte Project

Public investment is proven as the best form of public spending to increase economic output. This is the finding of the Global Infrastructure Hub from its analysis of more than 3,000 estimates of the fiscal multiplier from more than 200 academic studies. The research found that public investment has an average fiscal multiplier of about 0.8 within 1 year and about 1.5 within 2 years. Global Infrastructure Hub was formed by the G20 to provide dedicated resources to help implement the agenda on sustainable and inclusive infrastructure through action-oriented programs. At the onset of his government, President Rodrigo Duterte promised to increase government spending on infrastructure as percentage of Gross Domestic Product (GDP) at par with the global standards. His promise led to the development of the Build Build Build infrastructure development program which includes high-value infrastructure projects that are expected to increase the productive capacity of the economy and improve the business environment of the country. Based on the data compiled by the National Economic and Development Authority (NEDA) from 2011 to 2016, government spending on infrastructure as percentage of GDP averaged at 3.0%. But under the renewed infrastructure development program, government spending on infrastructure as percentage of GDP averaged at 4.9%. Despite the budget limitations caused by the pandemic, the government stated that government spending on infrastructure as percentage of GDP could increase to 5.7% in 2021. Although an elevated political risk due to the upcoming national election could prolong the unprecedented pandemic-driven economic crisis, investors should include infrastructure-related stocks in their portfolio as the country enters the golden age of infrastructure. Most of these stocks are undervalued by the market due to government bureaucracy rather than company fundamentals. Although the recent regulatory debacle with several infrastructure-related companies dented government reputation as a business partner, investors should remain steadfast and adaptable to the changing political landscape. The golden age of infrastructure has just begun and would usher in tremendous business opportunities to the infrastructure-related companies where investors could take part. Since most infrastructure-related stocks remain at oversold levels despite the muted community quarantine and modest market recovery, this could be the best time to include them in your portfolio and wait for the market to agree with the narrative that the golden age of infrastructure could be the goose that lays the golden eggs. Good things come to those who wait but only what is left from those who hustle.