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Issue date: April 17, 2017

PSE fund-raising pipeline ‘quite good’

COMPANIES are turning to the stock market to finance funding requirements, as foreign money flood back to emerging markets, but it will take more than liquidity to propel equities into uncharted territory once again.

Hans B. Sicat, president and chief executive officer of the Philippine Stock Exchange (PSE), said in a recent interview that more applications for initial public offerings (IPO) and equity fund-raising are on the way as companies seek to boost their war chest to take advantage of the country’s favorable growth prospects.

“The pipeline looks quite good for 2017 and based on not just the inquiries but the various levels of the process,” Mr. Sicat said.

Companies tapped the stock market for funding at a record P67.04 billion in the first quarter, according to data released by the local bourse last week.

This exceeded the previous high of P55.90 billion in 2014 and put the PSE on track to hit its P200-billion fund-raising goal for the entire year.

BDO Capital & Investment Corp. President Eduardo V. Francisco said the investment bank is working on a “couple” of IPOs in the range of P1 billion.

The strong interest comes at a time when local equities have emerged from the 7,150-7,400 trading channel after missing the rally among emerging markets.

Before going on an extended break, the bellwether PSE index (PSEi) had chalked up gains of 11.5% for the year to 7,629.64 on April 12.

The PSEi is up 16.2% from its recent low of 6,563.67 on Dec. 23, nearing bull market territory. An increase of at least 20% from a previous high is the common definition of a bull market.

The recent strength of local equities has been supported by the return of foreign capital, highlighted by nine straight days of net foreign purchases since March 31 that have pushed the PSEi up by 4.35%, so far, this month.

This mirrors a region-wide trend amid the fading effect of “Trump trade” -- as doubts mounted that US President Donald J. Trump can deliver promised business-friendly policies -- that propped up the US dollar and equities in the aftermath of his election on Nov. 8 last year.

“Net foreign buying... is significant evidence of foreign confidence,” PNB Securities President Manuel Antonio G. Lisbona said.

BDO Unibank, Inc. Chief Market Strategist Jonathan L. Ravelas made a similar observation, noting that “Wall Street has been declining from end of March.”

“It seems foreign funds are slowly trickling back to Asia, and India, Indonesia and Thailand have created new highs for the year,” Mr. Ravelas said.

“It seems it is the Philippines’ turn following a series of news.”

Credit rater Fitch Ratings, Inc.’s affirmation of the Philippines investment-grade rating and S&P Global Ratings’ upgrading at the end of last month of its economic growth forecast for the country may have encouraged foreign investors to park their money in local equities, Mr. Ravelas said.

The benchmark PSE index may have enough gas left in its tank to make a run for the 7,700 level, he said.

Beyond that, investors need to see progress in the government’s tax reform program that will fund its planned aggressive infrastructure buildup and the roll out of more public-private partnership (PPP) projects so the rally can pick up steam.

“I would prefer this rally to be more fundamentally driven by local development. People are still anticipating that the tax reform program will be passed. If it is indeed passed or more PPPs will be launched, those fundamental factors will help sustain this momentum,” COL Financial Group, Inc. Vice-President and Head of Research April Lynn L. Tan said.

“So far, wala pa (there is nothing yet).”

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