2011

Philippines and Indonesia Capital Markets

A Comparative Analysis

Baylon, Ma. Aika De Leon, Mikee Manongdo, Resty Remillano, Adelle Tordilla, Alec 3FM2

I. Demands for Securities

Indonesia Indonesia - data as of 31 July 2009

STOCK
0%

CORPORATE BOND

FOREIGN INVESTORS 3%

LOCAL INVESTORS 34%

FOREIGN INVESTORS 66%

LOCAL INVESTORS 97%

The total assets of Stock registered in C-BEST up to July 31, 2009 were dominated by foreign Investor ownership totalling Rp 696.65 trillion (66%). Such figures have experienced a decrease of 0.49% compared in 2008 (Rp 700.13 trillion). While total assets of stock owned by local investor up to July 31, 2009 was 34% or Rp 360.76 trillion, decreased 7.39% if compared in 2008 (Rp 389.55 trillion). In the meantime, total assets of Corporate Bond registered in C-BEST up to July 31, 2009 owned by local investor wereRp 77.84 trillion (97%). An increase of 1.70% has occurred on the figures compared in 2008 which was Rp 76.54 trillion. While total assets of Corporate Bond owned by foreign investor as per July 31, 2009 wereRp 2.58 trillion, decreasing 18.86% compared in 2008 which was Rp 3.18 trillion.

There are several forces that work positively for the Indonesian stock market. The first is the growing power of Indonesian investors. In the Indonesian banking system, the total assets of the banking system have almost doubled in the past five years, higher than the growth rates of other Southeast Asian countries, which mark the power of the Indonesian market for financial products. Such power spilled into the capital market by the increasing awareness of Indonesians of the benefits and risks of investing in the capital market.At the same time, Indonesian insurers,

pensions funds, mutual funds and other institutional investors have also risen fast to become the backbone of the Indonesian investor. At a time when foreign investors fled the country due to the recent de-leveraging process, the Indonesian stock exchange continued to thrive, albeit at a lower level, displaying the strength of Indonesian investors. When foreign investors returned, the additional demand on the stock market made the rebound very swift. The second force is the rise of the Indonesian middle class. The Indonesian middle class is now at least 30-million-strong. In fact, by 2015 we may see the size of the middle class double. That projection will guarantee the growth of returns for Indonesian companies. At the same time the middle class will form a very strong community of investors. Thus, from both demand and supply, the Indonesian middle class will create a formidable power for the Indonesian stock market and also the Indonesian economy. The third factor is the huge potential for new supply from initial public offerings. Thirteen new companies listed on the stock exchange in 2009.Meanwhile, many Indonesian companies are still not listed. In fact, of the more than 100 state-owned enterprises, only a few have been listed. The demand for Indonesian bond is relatively low at 3% for foreign investors due to the following considerable factors: a. The laws governed institutional investors are relatively new. b. Institutional investors learned unhappy experience from the securities market during the crisis of 1997 to 1998. c. High interest rates and government guarantees on bank deposit created disadvantages for bond market. d. Relatively weak in marketing and distributing bonds. e. The impact of bank recapitalization f. The lack of tax incentives for issuers and investors. g. the high level of corruption has also been identified as the ringleader of the weakening of investor confidence.

PHILIPPINES Philippines - data as of 31 July 2009

STOCK

CORPORATE BOND

LOCAL INVESTORS 28% FOREIGN INVESTORS 72%

LOCAL INVESTORS 38%

FOREIGN INVESTORS 62%

Foreign funds are snapping up local shares as Philippine companies have started announcing impressive results in the midst of an oil price crisis in 2009 as shown in the figure having 78% foreign investors as compared to local investors of 28%. Analysts believe that the market is currently at overbought levels but there is no end in sight for the buying spree. Analysts are expecting a correction anytime soon as investors seek to cash in their profits. However, the Philippines improving economy as well as other positive developments in fiscal policy is expected to prop up the local equities market.

Philippine corporate bond market is apparently among the most underdeveloped in the regionhaving 38% of local investors and 62% of foreign investors due to the following factors:

a. Legal The stiff stockholder approval requirement (two thirds majority) for corporate bond financing stipulated by the Corporation Code, as well as the unfavourable taxation environment, have dampened corporate bond issuances in the Philippines. There is an urgent need for the passage of important legislation (e.g. to update bankruptcy laws, amend the BSP Charter, and create a credit bureau) that will spur the development of the domestic bond market.

b. Transparency The following has contributed to a lack of transparency in the Philippine corporate bond market: 1. Exemptions from rating and listing requirements. 2. Absence of competitive pricing information using benchmark government debt prices. 3. No readily accessible monitoring and surveillance methods/tools for use by regulators. 4. Absence of data consolidation on completed transactions. 5. No access to reliable information on creditworthiness of issuers, except for sophisticated institutional investors. c. No organized trading The corporate bond market in the Philippines is bilateral and conducted OTC. Currently, there is no true picture of secondary market liquidity, and it is not clear whether there are repo or derivatives markets. The lack of pricing and distribution information has dampened the demand for corporate bonds. d. High issuance costs Because of high issuance costs, only top-tier corporations can issue bonds. Indeed, most Philippine companies, including small and medium-sized enterprises, would rather obtain their funds via bank loans than via the capital market. e. Problems besetting institutional investors Some institutional investors, such as pre-need companies, non-life insurance and mutual funds, (which, because of their liability structures, represent the bulk of demand for corporate issues) currently have a poor reputation in the market, which is hampering their growth. Dealing with the problems of institutional investors may require a stronger regulatory environment. f. Outmoded bankruptcy laws There are significant gaps between existing bankruptcy laws and investor protection. The current corporate rehabilitation law is obsolete, and does not ensure the ability of investors to immediately recover investments in the event of default.

The 62% of foreign investors of corporate bonds might be the effect of these important implications for Philippine bond markets:First, the prospect of strong economicgrowth and currency appreciationwill continue to attract foreigncapital. Some of this capital willflow directly into bond markets where it will put further downwardpressure on yields.Second, excess liquidity in thedomestic banking systems willremain considerable. Deposit growthwill continue to outpace loangrowth (loan/deposit gaps willwiden) and there will be strongdemand for bonds out of thebanking sector.Therefore, if capital inflows into the Philippine remain strong, the demand/supply balance in Philippine bondmarkets will remain skewed in favourof demand.

II. Supply of Securities A. Supply of Stocks y There are currently 426 companies listed in the Indonesian Stock Exchange or IDX. y IDX has 9 sectors to which each company is segregated and compared. y There are 251 companies listed in the Philippine Stock Exchange or the PSE. y Stocks listed in the PSE are classified into 6 sectors, namely Financials, Industrial, Holding Firms, Property, Services, and Mining & Oil.

PERFORMANCE No. 1 2 3 4 5 6 7 8 9 Name MINING AGRICULTURE CONSUMER MISC-IND INFRASTRUC TRADE FINANCE BASIC-IND PROPERTY Previous 3096.318 1981.172 980.954 901.394 759.038 482.833 429.003 357.538 176.979 High 3154.83 2040.414 1018.125 939.315 764.505 492.407 441.153 363.627 182.068 low 3099.655 1998.264 981.249 911.719 755.154 484.063 429.088 357.692 176.67

No. of Stocks Listed 28 15 34 42 33 95 95 59 47

Change 43.27 28.38 32.71 30.56 0.89 7.28 11.25 5.16 5.08

% Change 1.4 1.43 3.33 3.39 0.12 1.51 2.62 1.44 2.87

TYPES OF INDICES INDONESIA  LQ 45 y  -LQ 45 is a stock market index for the Jakarta Stock Exchange (JSX). The LQ 45 index consists of 45 companies that fulfill certain criteria, which is: Included in the top 60 companies with the highest market capitalization in the last 12 months included in the top 60 companies with the highest transaction value in a regular market in the last 12 months Have been listed in the Indonesia Stock Exchange for at least 3 months Have good financial conditions, prospect of growth and high transaction value and frequency PHILIPPINES PSE Composite Index -Commonly known previously as the PHISIX and presently as the PSEi, is the main stock market index of the Philippine Stock Exchange. The PSEi is the most watched index on the PSE and is also home to most major Philippine companies listed on the PSE. The PSEi is also the PSE's only broad-base index. It is also one of the indicators on the general state of the Philippine economy. The PSEi was one of the indices kept intact during the reclassification of the PSE's indices on January 2, 2006. Other similarly-kept indices included the PSE All Shares Index and the PSE Property Index.

 Kompas-100 Index  -is a stock index of 100 shares of a public company traded on the Jakarta Stock Exchange . Kompas-100 Index was formally issued by the Jakarta Stock Exchange(JSE) in collaboration with the newspaper Kompas on Friday August 10, 2007. Stocks are selected for inclusion in the index Kompas-100 is in addition to having high liquidity, as well as a large market capitalization, also the stocks that have good

fundamentals and performance.  The shares are included in the Compass-100 are estimated to represent about 70-80% of the total Rp 1582 trillion market capitalization of all stocks listed on the JSE, then so investors can see the tendency of the index movement direction by observing the movement of Kompas-100 index. However, this could have the opposite direction with composite stock price index (CSPI) and other indices.  Jakarta Islamic Index (JII)  -is a stock market index established on July 3, 2000 on the Indonesia Stock Exchange (IDX) (formerly known as Jakarta Stock Exchange) to help facilitate the trading of public companies according to Shariah business code. Following Islamic law prohibits a company from involving itself in activities related to gambling, speculation, and traditional banking and financing. The JII may not list equities that produce or distribute food, drink, or morally harmful items that stand in contradiction with Islamic values.  Considerations for the JII must meet procedural standards as well as performance requirements, such as:  The share must be listed on the exchange for at least three months prior to application.  The company s annual or midyear financial report must have an Obligation Asset ratio of no

more than 90%.  Rank in the top 60 shares based on the previous year s average Market Capitalization.  Rank in the top 30 shares based on the previous year s average liquidity in the regular market.  BISNIS27  The BISNIS27 Index is a capitalization-weighted index of the 27 most heavily traded stocks on the Indonesia Stock Exchange.  PEFINDO 25  PEFINDO's main function is to provide objective, independent and credible ratings on the credit risk of publicly issued debt securities through rating activities.  Apart from rating activities, PEFINDO continues to produce & publicize credit information relating to the debt capital markets. These publication products cover credit opinion on major companies that have issued Bonds and its underlying sectors.  PEFINDO is a private limited liability company, and as of December 2009 owned by 92 domestic institutional shareholders, comprising of major pension funds, banks, insurers, Indonesia Stock Exchange (IDX) and securities companies.

CURRENT PERFORMANCE OF INDONESIA STOCK EXCHANGE y A decisive and successful response, as well as a decade of sound policies and structural reform, helped Indonesia recover quickly from the 2008 global crisis. However, lingering

y y

concerns over weak enforcement of the rule of law, transparency, and governance issues, weigh on market perceptions. Addressing these weaknesses should be a priority. Political risk is currently less of a concern. The banking system is generally healthy. While banks are vulnerable to credit, interest rate, and liquidity risks, a high capital and earnings buffer has provided a cushion against macroeconomic volatility. The development of a viable capital market will help avoid an over-reliance on banking sector funding. Banking supervision and regulation have improved substantially, but gaps remain in dealing with problem banks and crisis management. Indonesia is planning a major change in the regulatory architecture by creating an integrated supervisory agency. This move reflects past thinking and could hamper the quality of supervision. Strengthened enforcement powers, independence, and legal protection for officials should be given priority. Bank Indonesia s financial position should be reinforced.

CURRENT PERFORMANCE OF PHILIPPINE STOCK EXCHANGE y Philippine stocks rallied again in 2010, with the Philippine Stock Exchange index (PSEi) closing at 4,201.14 during the last trading day on December 30, 2010 up 37.6% from the closing index in 2009. This means that a P100,000 stock investment at the start of 2010 is already worth P137,600 by the end of the year. According to the PSE, the market capitalization of all publicly-listed companies in 2010 totaled P8.87 trillion, an increase of 47.1% from the 2009 market capitalization of P6.03. And yet this performance is just half of the stunning 63.0% return of the Philippine stock market in 2009. Philippines exports grew by a higher than expected 35.9 percent in July from a year earlier, driven by robust electronics sales. The Philippine stock market rose to an all time high on Thursday, reflecting reduced country risk profile after the presidential election, improving macroeconomic data, and better earnings outlook. Readmore: http://advisoranalyst.com/glablog/tag/philippine-stockmarket/#ixzz1EPO5CuP5

Recent concerns in both stock markets Indonesia 1. Sharper than projected slowdown in economic growth due to slower recovery in commodity markets, in regional or global growth, or decline in domestic consumption -Monetary policy will provide Philippines 1. Import-Export Imbalance - Among the many economic problems faced by the Philippines, one is the imbalance of imports and exports. The negative trade is heavy and only counterbalanced by the service account surplus. Over the last two decades, Philippine exports have shifted from

limited room for stimulus as policy commodity-based products to rates have decreased sharply since manufactured goods. However, in the mid-2008. However, if the midst of the current global economic recession, the exports of electronics, economy weakens and commodity garments and textiles are yet to reach a prices remain subdued, policy level of import neutralization. interest rates could decline somewhat 2. Reduced capital inflows 2. Decline of the Philippine Peso and increased capital - The economic downturn has resulted in outflows triggered by the devaluation of the Philippine peso heightened investor aversion and subsequently, a fall in the stock toward Indonesia. market. The fiscal conservatism strategy - Notwithstanding, terrorist threats adopted by the Philippine government and political risk are factors has yet to reflect a positive effect on underpinning Indonesia s higher acceleration of economic growth. 6% sovereign risk premium than growth in the gross domestic product comparable countries. (GDP) in 2009 and 7.3% in 2010 has yet - Sustained capital outflows could to accelerate to the linear GDP growth trigger a sharp downturn in the projected by the government. macro environment (exchange rate, inflation, interest rates), market access problems and heightened roll-over risk for the government 3. Withdrawal of domestic 3. Reliance on Remittances retail deposit - President Gloria Macapagal-Arroyo has -Bank funding structure is short-term. pledged complete development of the Currently, banks rely mainly on retail economy by the year 2020. There has domestic deposits, both foreign and been a number of tax reforms put in local currency, for funding. Hence, place, alongside extensive asset they would be vulnerable to a sudden privatization. Nevertheless, Philippines' withdrawal of deposits to nearby offshore dependency on remittances from noncenters. resident investors is large. Neighboring - Second tier large banks and mid-sized competitors have been siphoning away banks with tighter liquidity positions big investors in infrastructure and greater reliance on deposits as a and outsourcing. This has resulted in an source of funding would be more uneven regional development. vulnerable. These banks would likely have more difficulty accessing the wholesale market in times of heightened counterparty risk 4. Sharp increase in commodity prices (e.g., oil and food) would result in inflation and higher interest rates, which in turn would lead to a further general

deterioration of the macro environment - Indonesian households and companies are vulnerable to a sharp increase in commodity prices, in particular energy and food given that they account for a significant share of consumption. Corporate margins would be squeezed by higher energy prices. The knock-on effect to the broader economy would be high given that domestic demand accounts for the bulk of economic activity. 6. Shortcomings in the framework for bank intervention and resolution accentuating banking risks - Exchange rate exposures are limited. Net open foreign currency positions are tightly managed. -The financial system is accustomed to dealing with exchange rate volatility B. Supply of Bonds Types of Bonds

Philippines  Zero Coupon Bonds most actively traded in the country; issued every two weeks; with tenors 91-, 182-, and 364days of maturity through an English auction where bidders bets for the winning bid. Average auction size Php 3B  Fixed Rate Treasury Notes issued by Bureau of Treasury (BTr) with maturity periods of 2-, 3-, 4-, 5-, 7-, 10- and 20years with semi annual coupons. Dutch System is used and average auction range from Php 2B 4B  Retail Treasury Bonds are divided in smaller denominations for small

 

sIndonesia Promissory notes this type of bond is issued by the government to the Bank of Indonesia from there to the public. Hedge bond - tenors are between 3 months and 3 years, with a coupon at the 3-month Singapore Interbank Offered Rate (SIBOR) plus 2%. The coupon is payable quarterly and linked to the rupiah dollar exchange rate. Treasury bills 12 month tenor for the first time in May 2007. Corporate debt - instruments consist of bonds issued by corporations, including state-owned entities. Most

investors. They are issued to underwriters rather than primary dealers and its average auction range from Php 20B 40B April 2010 they started issuing multicurrency bonds, which are also in small amounts, USD100 and EUR100, respectively.  Corporate bonds typically are commercial papers issued by blue chips corporations.

corporate bonds are listed on the Indonesia Stock Exchange (IDX). Corporate issues may be offered in the form of conventional bonds or shari'a-compliant instruments.

 Shari a - securities are structured as revenue-sharing instruments that conform to shari a principles by not recognizing interest payments. These securities including drafts, shari a bonds, and shari a mutual fund certificates are usually traded in money and capital markets. MOF issued its first 7- and 10year sukuks (Islamic certificates) to institutional investors in August 2008 and launched its first retail Islamic bond in February 2009. MOF also plans to issue global sukuks.

Current Status of Philippine Bond Market Size of LCY Bond Market in USD

This indicator shows the absolute amount of local currency (LCY) bonds outstanding in USD, categorized as government and corporate. Government bonds include obligations of the central government, local governments, the central bank, and state-owned entities. Corporates comprise both public and private companies including financial institutions and international organizations. Financial institutions comprise both private and public sector banks and other financial institutions. Bonds are defined as long-term bonds and notes, treasury bills, commercial paper, and other short-term notes. Philippines bond market posted a double-digit growth by the end of June, prompting the Asian Development Bank (ADB) to place the Philippines in the list of fastest growing markets for fixedincome securities in East Asia. According to the latest issue of the "Asian Bond Monitor" of the ADB, outstanding volume of local currency-denominated bonds issued from the Philippines amounted to P3.1 trillion as of the end of June, up 11.6 percent from only P2.78 trillion as of the same period a year ago. This was partly boosted by P127.8 billion in new bonds issued by the Philippine national government and state-owned firms, and the P18 billion in bonds sold by large corporate entities in the country.

In the publication, ADB said the growth of the bond markets of the Philippines and a few other emerging Asian economies was attributed in part to the huge liquidity in the global market and rising interest of foreign portfolio investors on developing Asian economies. Unlike their counterparts in the West that are seen to post a modest recovery from last year's global turmoil, emerging markets in Asia are expected to register robust economic growth rates this year. "Flush liquidity in global markets and higher returns in emerging East Asia's local markets is attracting capital flows...Emerging East Asia's most rapidly growing LCY [local currency] bond markets in 2010 [second quarter of 2010] were in Vietnam, China, the Philippines, and Indonesia," ADB said. Moreover, the hefty amounts of bonds being sold in the local bond market in the Philippines are likewise attributed to huge domestic liquidity. The Bangko Sentral ng Pilipinas (Central Bank of the Philippines) cited the country's banking sector, saying it has remained profitable despite the latest global crisis, and the huge liquidity of banks has enabled them to invest more heavily in government as well as in corporate bonds. Some analysts said, however, that the rising volume of bond issuances particularly by the Philippine government was a consequence of the still huge budget deficit that has necessitated heavy dependence on debt to fully accommodate its expenditure requirements. But they also recognized that the favorable growth projection for the Philippines, together with other Asian countries, has helped attract foreign funds despite the government's lingering fiscal problem. Proceeds of the bonds issued by the government this year are intended to help plug an estimated P325 billion in budget deficit. Amid a considerable demand for fixed-income securities from the Philippines, several privately owned corporate entities were able to successfully raise funds from the bond market, ADB said.

The private corporate bond issuers in the Philippines in the second quarter were the following: Ayala Corporation, which sold P10 billion in bonds; Rizal Commercial Banking Corporation, P5 billion; Metrobank Corporation P2 billion; and SM Prime Holdings, P1 billion. Meanwhile, companies that have the biggest outstanding bond issuance in the Philippines as of end-June were San Miguel Corp., with an outstanding issue of P38.8 billion; Banco de Oro, P30.9 billion; Rizal Commercial Banking Corp., P21 billion; and Metrobank, P18.5 billion. ADB said the performance of the bonds markets of the Philippines and a few of its neighbors indicated that the emerging East Asian economies were virtually unharmed by the debt crisis in the Eurozone. In fact, ADB said, uncertainties in Western economies and relatively higher yields in developing Asian markets have been attracting more funds to the latter. "Foreign participation in local bond markets has accelerated as investors hunt for yields and extend duration," ADB said. As of end-March, ADB said, emerging East Asia's corporate bond market accounted for 4.9 percent of total outstanding issues worldwide. This was up from 4.4 percent by the end of 2009.

Domestic Financing Profile Data vary across markets. For details download spreadsheet

LCY Corporate Bonds by Sector

The most common type of activity for which corporate bonds are issued in Indonesia, Malaysia, Philippines, Thailand, and Viet Nam is finance in the graph. Financial sector issuers include commercial banks, securities companies, and specialized finance companies. Other sectors with companies active in bond issuance across the region include infrastructure, transport, and energy.

INDONESIA Domestic Financing Profile Size of LCY Bond Market in USD of Indonesia

Current Status of Indonesian Bond Market Bond market suffered a great burden during the economic crises, which hit Asia and Indonesia in 1997. There was no new issuer listing its bonds in 1998. Meanwhile, the outstanding issuers faced difficulties in paying interest rates and even the principles when the bonds reached maturity. During this time, bond market financing was only newly developed, therefore a shallow bond market. However, bond market regained its strength in 1999 and achieved its top growth in 2003. During that year, the issuance value increased by 67.9% of the previous year and the number of issuers increased by 34% compared to that of a year before. The escalation kept continuing until mid 2005 so much so that the cumulative number of issuers reached 155 companies and the total bond issuance value achieved IDR 88, 83 trillion. The significant progress showed an increasing role of bond market as an alternative of financing for companies. Indonesia s bond market has grown steadily in recent years to offer a more diversified array of debt instruments to cater to a broader investor base. Foreign investors are allowed to invest in the bond market, subject to regulatory approval. The country s current legal framework for securitization encourages opportunities for new instruments to be introduced. As the largest issuer of bonds, the Government of Indonesia regularly taps the local market to finance the state budget.

Corporate bond activities, including conventional and Islamic bond offerings, accelerated significantly beginning in 2003 and have maintained momentum since then. Islamic bonds, which are based on shari'a principles, play a major role in Indonesian capital markets. In April 2008, the Islamic Shari'a Debt Bill was passed into law to enable the Government to issue Islamic bonds. The current status and expected growth of Indonesian capital markets, and strategies for future development, are detailed in the Indonesian Capital Market Master Plan. Domestic Financing Profile

Total domestic financing equals the sum of total domestic credit provided by the banking sector, total local currency (LCY) bonds outstanding and total equity outstanding. Percentage shares are computed to show the relative importance of each type of domestic financing. Stock market capitalization is used as a proxy for total equity outstanding. Data available: Quarterly after Dec 2006. Note on the Data:

1. Domestic credit provided by the banking sector is from the International Financial Statistics of the International Monetary Fund (IMF). This includes claims by the banking sector on the central government, state and local governments, nonfinancial public enterprises, private sector, and other banking and nonbanking institutions. Data are provided on a gross basis, with the exception of claims on the central government, which are net. The banking sector includes monetary authorities, deposit money banks, and other banking institutions. 2. The total amount of LCY bonds outstanding is from. ID: Bank Indonesia; Indonesia Stock Exchange.

3. Stock market capitalization (in USD) is sourced from the World Federation of Exchanges and includes only shares of domestic companies. Exchanges include the Hong Kong Exchanges, Indonesia Stock Exchange, Tokyo Stock Exchange, Korea Exchange, Bursa Malaysia, Philippine Stock Exchange, Shanghai Stock Exchange, Shenzhen Stock Exchange, Singapore Exchange, and Stock Exchange of Thailand.

4. End-of-period exchange rates are from Bloomberg, LP. Recent concerns in Bond Markets Philippines  Need to improve RP s low domestic savings rate  Inefficiency of the primary auction market - we have the electronic bidding and award posting, yet the market is inefficient because yields for time deposits with the same tenors are higher than T-bills issued by the BTr. This is because the primary investors for T-bills are commercial banks they make it into their favor.  Lack of a secondary market. The nonexistent secondary market that arises from the fact that primary buyers of treasury bills opt to hold on to these instruments until they mature, thus, making the market illiquid. Another reason for the illiquidity is the lack of any functioning market makers, which in the ideal situation could be an investment house that could ensure the public that despite the lack of market  Indonesia Illiquidity and ambiguity The liquidity and the overall dynamism of the bond market is largely reflected by the extent of trading in the secondary market. The secondary market turnover ratio the ratio of annual stock transactions to outstanding stock of bonds is, therefore, a good indicator of the liquidity and the dynamism of a bond market. Need Further Enhancement on Clearance and Settlement System calls for Further Regulation since their rules are usually violated, they are not enforcing the laws properly. Weak minority shareholder rights also create uncertainties as to whether or not bondholder rights will be upheld during disputes and bankruptcies

 

activity, there is liquidity as assured by their presence in the market. There are only a few investment houses in the country, and a number is owned by commercial banks (others are poorly capitalized).  Heavy taxation of secondary market transactions. Since the docs stamp tax of 0.75% is based on the face value of the instrument, it is a significant additional cost to the cost of the transaction. This makes holders unwilling to unload their securities to achieve liquidity and realize capital gains. Although the removal of the tax is part of the Department of Finance (DOF) s Financial Sector Tax Reform Program, it has yet to be granted legislative approval.  Lack of investor interest. Interest rate fluctuations, lack of market liquidity and lack of market knowledge continue to discourage investors to hold long-term instruments such as government bonds and securities. And since the market is very thin, the general public and even financial professionals lack knowledge about how the market works. Benefits of capital market development to the real economy Channels funds to most appropriate investments; Sets benchmark for risk-free yield curve; Provides access to local currency funding; Provides diversified and higher returns for domestic savings; Re-prices financial assets continuously; Helps develop new hedging instruments; Attracts different types of investors; Ensures better financial reporting in both financial and real sectors of the economy.

Recommendations to Stock Markets 1. Since Indonesia has been severely hit by the Asian Crisis, authorities should continue on supporting the rehabilitation of the country. They should continuously provide means to ease up the liquidity issues that threaten potential investors of the country. 2. Market participants view Indonesia as a country with great potential, supported by a large consumer base and rich in natural resources, so wealthy Indonesians should at least try putting some of their savings to the country not offshore. This is because the financial sector is currently lagging behind as compared to other Asian countries. Recommendations to Bond Markets Philippines 2. 3. 4. 5. 6. 7. Advocacy of better corporate governance and transparency Promotion of sound market infrastructure Demand higher standards of conduct from external auditors Complementary: a program for improved financial literacy so that investors can impose proper market discipline Stringent enforcement of mark-to-market regulations to improve financial transparency and promote more active secondary market trading

Indonesia 1. It is important to ensure that courts and enforcement agencies act and decide fairly and expeditiously to resolve commercial disputes. 2. Ensure regulating bodies are concern with fairness and transparency within trading, so this would not result to neglecting of small investors. References: Asian Bond Market October 2010 Asian Development Bank Indonesian Capital Market Master Plan 2005 2009 The Indonesian Bond Market Updates by Baharudin Arif Capital Market Supervisory Agency (BAPEPAM) Developing Bond Market in the Philippines by Nestor A. Espenilla, Jr. http://advisoranalyst.com/glablog/tag/philippine-stock-market/#ixzz1EPO5CuP5 http://www.pse.com.ph/r http://asianbondsonline.adb.org/publications/external/2010/indonesia_financial_system_stabi lity_assessment.pdf

http://www.idx.co.id/Home/MarketInformation/MarketIndex/tabid/110/language/enUS/Default.aspx http://markets.ft.com/tearsheets/constituents.asp?s=JSC:JKT http://www.disb2b.com/front/industryreport.php?banchor=1&klui=K8131#condition