By Cliff Venzon
16 October 2017 | Nikkei Asian Review
PSE aims to raise capital, expand investor reach, in line with warming relations with China under Duterte
MANILA -- The Philippine Stock Exchange is in talks with its counterpart in Shenzhen in China over a potential investment, as one of Southeast Asia's smallest bourses moves to raise capital and expand its investor base.
Discussions are still "very preliminary," PSE President and CEO Ramon Monzon told reporters on Monday after revealing the talks during his speech at the annual meeting of the Shareholders' Association of the Philippines.
PSE, the Philippines' sole stock trading platform, is inviting the Shenzhen Stock Exchange to participate in the sale of shares to partly fund its merger with the PDS Group, the country's lone fixed-income exchange.
The capital-raising exercise is also intended to fix PSE's ownership structure.
Brokers own around 28% of PSE, in a violation of the country's securities regulation code which limits a group's stake to 20% and a single entity's to 5%. By selling new shares to new investors, including to the Shenzhen Stock Exchange, PSE is seeking to dilute brokers' hold on the bourse.
Apart from addressing the issue of ownership, Monzon sees an investment by the Shenzhen Stock Exchange as a bridge to connect to Chinese investors.
"The reason why we would like to tie up with the Shenzhen Stock Exchange is because both Shenzhen and Shanghai stock exchanges have what they call the Shanghai or Shenzhen connect with Hong Kong," he said.
"I would like to eventually [see] a Shenzhen-Manila connect whereby Chinese investors can have the ability to invest in our market," he added. "I don't think our brokers are ready to invest in a foreign market. But again, China being very liquid as far as investors are concerned would readily invest in the Philippine market.
The Manila-Shenzhen stock-connect could model the one between the mainland and Hong Kong, which first began with Shanghai in November 2014, then extended to Shenzhen in November 2016, as part of Beijing's efforts to internationalize the Chinese yuan.
The Shanghai bourse is dominated by the country's state-owned, large-cap stocks, like Industrial and Commercial Bank of China (ICBC) and PetroChina; while the Shenzhen exchange hosts a number of the country's homegrown technology companies, such as ZTE and BOE Technology Group.