THE PHILIPPINE STOCK EXCHANGE, INC.

Philippine Investment Climate

Eye on Cebu: An Investment and Economic Summit 01 August 2012

Leonardo G. Quinitio AVP & Head, Capital Markets Development Division

5,000

Why invest in the stock market?

The resiliency of the Philippine stock market to withstand external shocks

Growth drivers in the pipeline to further develop the stock market

Philippine economy is experiencing steady growth with strong overseas remittance, good governance, benign inflation, and stable interest and exchange rates.

Sound Macroeconomic

Environment

Growth Drivers

1

2

3

Resilient Stock Market

Indicators

Stab

le e

con

om

y; s

tro

ng

mar

ket

ind

icat

ors

; dri

vers

to

gro

wth

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Economic Snapshot

Monetary Environment

Credit Upgrades

• Moody’s: Ba2 (Positive)

• Fitch: BB+ (Stable)

• S&P: BB+ (Stable)

Business Confidence

Sustained Economic Growth

Source: National Statistics Office, Bangko Sentral ng Pilipinas, Department of

Treasury, World Economic Forum’s The Global Competitiveness Report

Indicator 2010 2011 2012

GDP Growth (in %) 7.6 3.7 6.4 (1Q)

Ave. Inflation (in %) 3.8 4.8 3.0 (6M)

Exchange Rate,

EOP

43.89 43.93 42.28 (Jun)

GIR (in US$ Bn) 62.37 75.30 76.28 (Jun)

Ave. 91-Day T-Bill

Rate (in %)

3.73 1.37 2.17 (May)

7-Year T-Bond Rate,

Latest Auction (in %)

5.28 5.02 4.695 (Jul)

Debt to GDP Ratio

(in %)

52.4 50.9 N.A.

Unemployment Rate

(in %)

7.3 7.0 6.9 (Apr)

WEF

Competitiveness

Ranking

85 75 N.A.

6.1 7.1

8.9

10.9 1.7

1.9 2.4

2.9

0.0

1.0

2.0

3.0

4.0

5.0

10.0

15.0

2008 2009 2010 est. 2011

Total Value Jobs Generated

In billions

US$ in millions

Government Consumption

11%

Capital Formation

17%

Net Exports3%

Household Consumption

69%

17.3 18.8 20.1

7.9 8.3

-2.0

2.0

6.0

10.0

14.0

18.0

22.0

2009 2010 2011 May-11 May-12

Demand-Driven Economy

BPO

Gross Domestic Product 1Q 2012

OFW Remittances (in billions U.S. dollars)

Sources: National Statistical Coordination Board Bangko Sentral ng Pilipinas Business Process Association of the Philippines

Mac

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Improved Investment Climate

Good Governance

Sound Fiscal Management

Business and

Investor Confidence

Mac

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on

om

ic In

dic

ato

rs

6.34

13.00

16.47

0

5

10

15

20

25

30

2009 2010 2011

Gross FPIs PSE-Listed Securities

Foreign Direct Investments (in million US$)

Investments in PSE-Listed Securities Share to Gross FPIs, as of end- 2011

Progressive Foreign Investments

PSE-Listed

Securities, 56.0%

Gov't. Securities,

40.8%

Others, 3.1%

Source: Bangko Sentral ng Pilipinas

1963

1298 1262

571 837

0

500

1000

1500

2000

2500

2009 2010 2011 Apr-11 Apr-12

Gross Foreign Portfolio Investments (in billion US$)

Mac

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Philippines as Key Investment Destination G

row

th P

rosp

ects

fo

r th

e P

hili

pp

ines

The PSEi tops the

“Bloomberg Riskless Return

Ranking”

in Southeast Asia

Philippines as part of the “Next 11” – which also includes South

Korea, Mexico, Indonesia, Turkey, Egypt, Vietnam, Pakitan, Nigeria,

Bangladesh and Iran

- Jim O’Neill, Goldman Sachs

“The Philippines’ growth trajectory continues to move upwards.. It will not be long

before the Philippines gets its much-awaited upgrade to

investment grade… ”

- HSBC “Five ASEAN economies –Indonesia, Thailand, Philippines,

Malaysia and Vietnam- along with China and India will

outpace the rest of the world over the next two years.”

-International Monetary Fund

0

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012

+4% +38%

Stock Market Highlights

-48% +63%

+21.4% As of July 31,

2012 • PSEi posts record

high 21 times,

treading the 5,300

level

Record Close:

5,369.98 on July 5, 2012

Sto

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ates

Performance vs. Selected Asian

Exchanges

Sto

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ates

2011 vs. 2010 As of July 30, 2012 vs. 2011

-32.9%

-27.5%

-24.6%

-24.6%

-21.7%

-21.2%

-20.0%

-18.9%

-17.3%

-17.0%

-11.0%

-0.7%

0.8%

3.2%

4.1%

-35.0% -25.0% -15.0% -5.0% 5.0%

SZSE

VNI

Sensex

Nifty

SSE

Taiex

Hang Seng

Topix

Nikkei

STI

KOSPI

SET

KLCI

JCI

PSEi

-4.1%

-0.6%

0.4%

1.0%

1.2%

2.1%

6.2%

6.6%

7.3%

10.9%

12.4%

14.6%

16.4%

18.0%

20.7%

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

SSE

SZSE

Topix

KOSPI

Taiex

Nikkei

Hang Seng

KLCI

JCI

Sensex

Nifty

STI

SET

VN Index

PSEi

55.57

(22.16)

14.92

35.62

56.52

24.28

92.67

(40)

(20)

0

20

40

60

80

100

2007 2008 2009 2010 2011 July 29, 2011

July 31, 2012

90.13

31.55 38.77

84.94

107.50

60.03

91.13

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 July 29, 2011

July 31, 2012

5.48

3.11

4.11 4.95

5.71 5.32

7.56

0.0

1.5

3.0

4.5

6.0

7.5

9.0

2007 2008 2009 2010 2011 July 29, 2011

July 31, 2012

Sto

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ates

Average Daily Turnover (in PhP Bn) Capital Raised (in PhP Bn)

Stock Market Highlights

Net Foreign Transactions (in PhP Bn)

42.2%

51.8%

281.7% 7,977

4,072

6,032

8,866 8,697

10,144

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010 2011 July 31, 2012

Total MCAP (in PhP Bn)

16.6%

5.54 6.27

7.56

Jan. 3-Sep. 30, 2011 Oct. 3-Dec. 29, 2011 Jan. 2-Jul. 31, 2012

Key Milestones In

itia

tiv

es

Listing

• Revised Rules on Listing by Way of Introduction

• Relaxed Listing Requirements for Oil & Renewable

Energy Companies

• Reinstatement of the 10% Minimum Public Ownership

Rule

Trading

Activity

• Launch of PSETrade

• Extended trading hours until 1:00 PM in October, and up

to 3:30 PM by the first trading day this year

• Revised Index Management Policy

Average Daily Turnover

(in PhP Bn)

Ach

ieve

men

ts

Trading Hours: 9:30AM to 12:10PM

Trading Hours: 9:30AM to 1:00PM

Trading Hours: 9:30AM to 12:00NN 1:30PM to 3:30PM

Ach

ieve

men

ts

Key Milestones In

itia

tiv

es

Market

Education

• Launch of PSE Academy website

• Cebu Satellite Office

• Collaboration with academic institutions

PSE Cebu Office 2nd Floor, Insular Life Cebu Business Centre, Mindanao Avenue corner Biliran Road, Cebu

Business Park, Cebu City

444,680

476,194

498,838 505,054

400,000

425,000

450,000

475,000

500,000

525,000

2008 2009 2010 2011

1.3%

Total Number of Accounts

Market Education Efforts A

chie

vem

ents

CHED Memorandum Order No. 39, series of 2006

Certified Securities Specialists Course

Integration of Capital Markets subject in high

school curriculum

MBA with Specialization in Capital Markets

Ach

ieve

men

ts

Key Milestones In

itia

tiv

es

Corporate

Governance

• Spin-off of PSE-Market Regulation Division into Capital

Markets Integrity Corporation

• Increased capitalization of broker dealers by 50% in 2011;

and up to P100 million for new entrants

Wholly-owned subsidiary Spun off entity of the PSE’s Market Regulation Division Incorporated in March 2011 and began operations a year

later Provisional SRO status Launched Total Market Surveillance

Economic Outlook 2012

Source: Philippine government, and Asian Development Bank

Opportunities

• Closer to investment grade status

• Benign interest environment

• Current administration’s policy on good governance

Risks

• US and Euro zone debt concerns

• Weakening of China’s economy

2012 2012 2012 2013

GDP Growth Rate (in %) 6.4 (1Q) 5.0 to 6.0 4.8 5.0

Inflation Rate (in %) 3.0 (6M) 3.0 to 5.0 3.7 4.1

Export Growth (in %) (8.4) (5M) 10.0 5.4 9.4

Import (in %) (4.6) (4M) 15.0 7.2 10.8

ActualPhil. Government

Targets as of April 2012

Asian Development Bank

Wh

at L

ies

Ah

ead

Sector Outlook

Financials

• Improved earnings momentum from lending and fee-based activities

• Strong capitalization base of local banks

Industrial

• Government prioritization of infrastructure projects in its Public-Private Partnership (PPP) program

• Continued upgrading and expansion of power generation companies

Wh

at L

ies

Ah

ead

Sector Outlook

Property

• Demand for residential and office space

• Development of affordable housing units

Services

• Continuous technological advances in telecommunications and entertainment

• Increasing tourist arrivals

Mining & Oil

• New executive order on mining

• Opportunities in further oil exploration

Wh

at L

ies

Ah

ead

2012 Plans & Programs

COMPETITIVE AND VIBRANT

MARKET

Strategic

Agenda

Thrusts

List more companies and securities

Expand and educate the investor base

Value and enforce corporate governance standards

Enhance shareholder value

Launch new products and services

Upgrade market infrastructure and human resources

Partner with government and other stakeholders

Increase

Liquidity

Improve

Corporate

Governance

Strengthen

Organizational

Foundation

Tow

ard

s a

Co

mp

etit

ive

and

Vib

ran

t M

arke

t

Increase Liquidity

• Develop models/ mechanisms to help facilitate TPs who are willing to provide online trading to give this service to clients

• Capitalizes on technology-savvy Filipinos by tapping rapidly growing online investor base

Promote Online Trading

• Educate investor base in other areas outside of Metro Manila and encourage local companies to list with PSE

• Expands reach to prospective investors and applicant companies in different parts of the country

Establishing

Satellite Offices

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Exchange Traded Funds (ETF)

Personal Equity and Retirement

Account (PERA)

Securities Borrowing

and Lending (SBL)

Improve Corporate Governance

Enhanced risk management

and monitoring framework

Total Market Surveillance

PSE Bell

Awards

Recognize listed companies

and trading participants

adhering to CG standards

as well as PSE and SEC

rules and Regulations

Put in place a comprehensive

surveillance system to ensure

an efficient market

Increase investor

confidence that is enabled

by an environment of

improved investor

protection and CG

standards

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Moving Forward

Strong growth in the Philippine economy will lead to increased disposable income and greater funds

being invested in the capital markets

Structural regulatory changes, an increased variety of products available for trading and enhanced

investor base will result in significant mobilization of funds channeling into capital markets and increasing

the number of listings and trading volumes

Low cost philosophy and scalable platform of the PSE will further strengthen the operational efficiency

and therefore enhance the profitability of the stock exchange

Enhanced corporate governance and capable management team will reinforce investor confidence

Low capital market penetration, coupled with strong economic growth, favorable regulatory

changes and enhanced operational efficiency, indicates significant room for long term capital

markets growth

Favorable

macroeconomic trends Enhanced corporate

governance

Profitable structural

drivers

Sto

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DIS

CLA

IMER

Thank You

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