MANILA, Philippines - MSCI makes stock lists or indexes which global fund managers look up when allocating investment dollars.
One might think MSCI would increase the Philippine share -- or weighting -- in these indexes as Philippine stocks break records and trading increases, but the Philippines' weighting in MSCI's emerging markets index won't budge.
Just last week, MSCI kept the Philippines at under 1% of the emerging markets index where it's been for the past decade.
This means the Philippines and stocks of Philippine companies could be getting fewer investment dollars than they could.
The reason: The 40% cap on foreign ownership.
Because some companies are close to the 40% cap on foreign ownership, MSCI sees no reason to tell foreign investors to invest more: because they can't.
Most hurt are the telcos, where a new policy on foreign ownership limits is still in limbo.
"There still continues confusion in terms of how foreign ownership restriction is applied. We're monitoring closely because we get queries, a lot of investors wondering if there's a change in the weighting. Depending on how you interpret rule, that will affect the free float factor. But we're not doing anything because we're awaiting the regulator, the court to make final decision and come to a final resolution," Chin Ping Chia, MSCI head of equity research for Asia Pacific, said.
The MSCI Philippines index includes 18 stocks, less than the 30 in the PSE index.
But PLDT, for example, has a weighting of just 8% in the MSCI versus 12% in the PSEi.
MSCI says it cuts a stock's allocation in its index, when foreigners can't buy more of the stock.
"The foreign ownership has impact of reducing the maximum amount of shares that investors can buy. You could be a non-strategic shareholder, you can be simply a foreign investor. You start buying into a company, when your peers buy into the company, very soon you will be close to the limit ... When you reach a limit, even if they're a non-strategic shareholder, it is not possible for another investor to come in and to buy the remaining shares," he said.
"If these foreign rooms get dangerously close to a level that is impossible to replicate, what we typically do is we try to mitigate the effect by cutting the weight of the company," he added.
'PH not a darling of investors'
Despite the tear it's on, one fund manager says the Philippines isn't the darling of international investors.
First Metro Asset Management president Gus Cosio says the Philippines isn't the darling of international investors.
"In my meetings with fund managers last month, a very small minority have exposure in the Philippine equity market. All these inflows we are seeing are coming from a smaller minority of Philippine watchers," Cosio said.
Cosio said net foreign buying remains thin, just $800 million in the last six weeks, not even half of the volume turnover of the Hang Seng in one day.
April Lee Tan, research head of COL Financial, says it's not just hot money that the Philippines is missing out on. It's also foreign direct investments supposedly for factories, BPOs and capital-intensive industries.
MSCI says it's not there to pick which companies are bad or good, which ones as healthy or not.
MSCI says it helps investors capture opportunities which can't be there if a market's doors are not entirely open.