A WIDENING corruption scandal involving flood control projects has shaken investor confidence, erasing around P1.7 trillion in market value in just three weeks, according to Securities and Exchange Commission (SEC) Chairperson Francisco Ed. Lim.
“The flood control project scandal has shaken public confidence, wiping out an extraordinary P1.7 trillion in market value of our publicly listed companies in just three weeks, despite rising corporate earnings,” Mr. Lim said in a speech at the 57th annual conference of the Financial Executives Institute of the Philippines.
He said investors are fleeing the market because of “weak integrity,” not weak fundamentals.
“It’s a stark reminder that corruption is a weapon of mass wealth destruction,” Mr. Lim said. “When trust breaks down, capital dries up, and everyone — government, business, and the public — pays the price.”
In recent weeks, markets have been rattled by the widening probe into corruption in government projects, particularly flood control.
The Philippine Stock Exchange index (PSEi) dropped steeply from 6,200 levels in mid-September to a low of 5,953.46 on Sept. 30, marking a new near six-month low for the PSEi.
Mr. Lim said the stock market is a laggard, reflecting a crisis of confidence.
“Too many firms still hesitate to go public, while others who have chosen to go public are leaving the stock market. This is not just a market issue. It’s a trust issue,” he said. “Rebuilding the trust is one of the SEC’s most urgent missions.”
Top Line Business Development Corp., a Cebu-based fuel distributor and retailer, remains the sole company to have conducted an initial public offering and listed on the PSE this year. Meanwhile, Maynilad Water Services, Inc. is set to make its market debut on Nov. 7.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said some of the biggest PSEi members experienced sell-offs.
“Sell-offs occurred due to market sentiment being weighed down by political noise, especially since last month, despite solid economic and corporate fundamentals and valuations,” he said in a Viber message.
AP Securities, Inc. Research Head Alfred Benjamin R. Garcia said there is increasing negative sentiment towards companies and sectors that could be potentially affected by the widening corruption probe such as banks, casinos, luxury property developers, automotives and car dealerships.
“In particular, there are growing calls to demand accountability from banks as they serve as conduits for misappropriated funds. Casinos were also mentioned as establishments frequented by personalities connected to the scandal and there’s speculation that demand for luxury property and cars were propped up by money from corruption,” Mr. Garcia said in a Viber message.
He said there could be overcorrection in the infrastructure sector as increased oversight could slow the implementation of projects.
“This would have a negative impact on GDP and more broadly speaking, on economic development,” Mr. Garcia said.
On Wednesday, the PSEi rose by 0.24% or 14.91 points to close at 6,098.74, while the broader all shares index increased by 0.31% or 11.43 points to end at 3,684.65. — Alexandria Grace C. Magno
