(Yicai Global) July 22 -- The Philippine Stock Exchange aims to activate a stock trade mechanism with China’s Shanghai, Shenzhen and Beijing bourses by 2024, the president of the Philippine exchange told Yicai Global in a recent interview.

The Philippine Stock Exchange and the Bank of China are working to bring the two countries’ capital markets closer, and one of the outcomes is likely to be a stock connect program, which will allow investors in each country to trade stocks in each other’s markets through their home exchange, said Ramon S. Monzon, who is also chief executive officer.

The Philippine Stock Exchange and the Bank of China agreed to provide financial services to support bilateral trade and investment through capital market linkages between the two countries, according to a Memorandum of Understanding signed on July 6.

YG: This is actually the first time we have heard about a stock connect scheme between the Philippines and China. How did you come up with this idea? How far have you got?

Ramon S. Monzon: Actually, before the MOU was signed with Bank of China, we were already in talks with the Shenzhen Stock Exchange. One of the goals before the pandemic struck was to have a PSE-Shenzhen Connect. When the pandemic broke out, the plan was shelved.

Fortunately, the Bank of China branch here in Manila has been very active in promoting trade between China and the Philippines. And this is one of the issues they have focused on. So we are very happy that they're involved. Hopefully this will fast track the project that we were discussing with Shenzhen. Now with the Bank of China MOU, it won’t just be Shenzhen, but will also involve the Shanghai and Beijing stock exchanges.

YG: What is hardest part in organizing the stock connect?

RM: The most difficult part are the different regulations. In the Philippines, for a company to be traded on an exchange, this firm must be listed with our securities and exchange commission. They go through a registration process of their company, their plans and financials. Obviously, if Chinese companies trade on the exchange, these firms are not going to register in the Philippines.

There are other regulatory aspects that we have to tackle. For instance, the question of cross border transactions as this will involve foreign currency and international payments. So this will also have to be resolved with our central bank authority and with the Chinese central bank authority. So it's not going to be a fast process.

If you ask me how long do you think it will take or what's my timeline, I would hope we can spend the rest of this year plus even half of next year, if not the whole of next year, to really iron out all the details. And I would like to hope that come 2024, the PSE Shanghai, PSE Shenzhen and PSE Beijing Connects are up and running.

YG: How can stock connects and other collaborations benefit the capital markets in both countries?

RM: I think it will definitely benefit the Philippine market a lot. By opening the Philippine market to Chinese investors, I hope it will generate a lot of trading volume. There are already the Shenzhen-Hong Kong and Shanghai-Hong Kong Connects. So we're trying to see what kind of volumes are involved there. We don't expect to have the same volume as Hong Kong has, but it will give us an indication of how much appetite Chinese investors have to invest in foreign markets. That's something we'll be working on.

Editor: Kim Taylor