Broadening the Filipino investing class
THE growing number of people falling for investment scams underscores the inaccessibility of the country’s financial markets to ordinary savers. That otherwise educated people would risk losing their hard-earned savings to any of a growing number of illegitimate get rich-quick schemes says a lot about how far removed higher-yielding investment instruments are from the average Filipino’s life.The blowout in the preneed industry is partly to blame, as it eroded trust in what were supposed to be legitimate investments. But there are structural reasons as well.
With savings account rates dropping close to zero, it’s no wonder consumer spending has been the main engine of economic growth. Why leave your cash in the bank when it would earn less than the inflation rate.
Price increases have sunk to historic lows, pulling down interest rates, with the benchmark 91-day Treasury bill rate at one time slipping to an all-time low early this year. The government fancies that the low rates are a result of its narrowing budget deficit. So while an improving fiscal position brings down the cost of borrowing and allows government to cut its debt, the dividends of this fiscal restraint are not shared equitably by all.
Sure companies, especially big ones trading at the local bourse, have been enjoying a bonanza of fundraising. We’ve seen many of them refinancing their expensive debt with cheaper ones, while a growing number of firms are raising fresh capital by selling additional shares at the stock market. More importantly, family-held firms are braving the market, and opening ownership to the public through maiden share offerings.
All of this fundraising has attracted its share of new investors, particularly from the retail side. But we’re far from where China is, where you see ordinary people in their shorts and sandals, crowding in any of the neighborhood stock market satellite stations, watching their bets while reading the papers, gossiping, knitting, even playing cards or chess.
Local financial regulators luckily have noticed and have been going the rounds of key cities imparting the virtues of investing in the stock market. Unfortunately, we have a long way to go before we can raise our country’s domestic savings rate in a sustainable manner.
This is unfortunate because our low savings rate is a key reason why we go to great lengths, even foregoing much-needed tax revenues, to attract foreign investments to fuel our economic expansion on a more sustainable pace. Foreign money however is fickle and no serious reformer would rest his (or her) industrial policy on the lone leg of foreign investments.
Restoring confidence in the financial markets is in order. But regulators have to do more.
Low interest rates should be a boon since they bring down the cost of borrowing to build houses, buy cars and establish or expand businesses—all worthwhile activities that would create jobs and raise people’s incomes.
But financial market stakeholders should go beyond a literacy program. Pricing or the cost of investing obviously is an issue.
Regulators should take their cue from the world’s most advanced markets so we can broaden the Filipino investing class. Failing to do so would prevent our economy from really taking off.
