Singapore’s efforts to bolster investor trust could ignite its stock market
31 October 2024
In financial markets, liquidity begets liquidity: capture enough activity, and more will come your way.[1] But the reverse is also true: a lack of liquidity can send participants scurrying off elsewhere.
It’s a pattern all too familiar to Singapore’s stock market. In line with its relatively thin trading volumes, Singapore Exchange (SGX) has in recent years seen de-listings exceed initial public offerings (IPOs),[2] and it lags far behind its rival regional financial hub, Hong Kong.
Total securities turnover on SGX stood at S$22.8 billion (US$17.7 billion) in August 2024 – its highest level in two and a half years.[3] But while turnover on Hong Kong’s stock exchange dipped in the same month, it was still many times higher than that of Singapore, at HK$3 trillion (US$380 billion).[4]
The SGX is not just plagued by low turnover. It also has much weaker turnover velocity, a measure of market liquidity calculated by dividing turnover by market capitalization. In Singapore, this stood at 36% for the whole of 2023, compared to 57% in Hong Kong and 104% in Japan.[5]
All this is in spite of Singapore’s strengths. It has a larger economy than Hong Kong, attracts more foreign direct investment,[6] and has a comparable business environment, as well as infrastructure and access to talent for financial institutions. So what accounts for the discrepancy?[7]
Both cities serve as gateways to much larger and fast-growing markets: Hong Kong to the rest of China and Singapore to ASEAN. But while Hong Kong has succeeded in attracting primary and secondary listings of many of the biggest and best-known Chinese companies, which now dominate local market turnover,[8] Singapore has fared less well in attracting ASEAN’s leading corporations.
At the same time, listings are surging in Indonesia and Malaysia, highlighting the urgency for Singapore to improve its standing in the region.[9] Indonesia now holds the title of Southeast Asia’s biggest stock exchange.
Furthermore, many of Singapore’s own technology and new economy companies have opted to list in the US, following in the footsteps of super-app Grab, which listed on Nasdaq in 2021,[10] in the hopes of better liquidity and valuations.
Getting lost in the crowd?
Those that make the journey don’t always find what they were looking for: southeast Asian companies on Nasdaq have recorded a median price decline of 80% since listing.[11] One problem is that US investors have plenty of more familiar names to choose from, so exotic stories can struggle to gain traction. It’s impossible to know how they would have fared had they decided to list at home, but local investors would at least have been more familiar with them.
The Singapore government and SGX have for years sought to boost the appeal of the city-state’s stock market. But the dismal performance of recent high-profile Southeast Asian listings in the US might finally mean that the latest moves to revive listing and trading activity on Singapore’s bourse stand a stronger chance of bearing fruit.
In September, Singapore’s Second Minister for Finance, Chee Hong Tat, said the city-state was prepared to make “bold changes” to regulatory structures to revive the stock market.[12]
Among the measures being considered are removing outdated rules, encouraging a pipeline of quality primary and secondary listings by cutting listing costs, and boosting liquidity by incentivizing market makers to facilitate price discovery, broadening stock indexes and expanding the pool of equity market derivatives. These measures could be implemented in phases before the end of a 12-month review period.[13]
The government hopes that these reforms can help revive investor confidence and support the SGX’s broader ambition of becoming the premier listing hub within ASEAN[14] – just as the region embarks on a phase of rapid and transformative development, putting it on track to potentially become the world’s fourth-largest economy by 2030.[15]
The groundwork has already been laid for the regional integration of equities markets through the ASEAN Trading Link, launched in 2012. This connects the stock exchanges of Singapore, Malaysia, and Thailand, allowing investors to trade securities across borders seamlessly.[16] This will help bolster liquidity – which will in turn bring more liquidity.
What the Singapore market needs now is to strengthen investor trust. To do this, many argue that Singapore needs to further improve its corporate governance to ensure the playing field is indeed level.[17]
Managing expectations
Investors will also need to adapt. They will need to understand that conditions may not always be smooth, and – so long as the market operates fairly – they will need to take ownership of their decisions. After all, more liquidity might mean more volatility, too.
SGX Chairman Koh Boon Hwee has warned of exactly this, saying that all parties must learn to accept the occasional challenges. “With volatility comes active trading. And active trading in turn enhances liquidity,” he said. “A highly liquid market drives valuation, paving the way for initial public offerings.[18]”
Courage could bring reward. If Singapore’s efforts to kick-start its stock market succeed, this could be a good time for investors to increase exposure. Those looking to raise capital to do that may wish to consider securities-backed financing from EquitiesFirst, which provides convenient and flexible financing for long-term shareholders against their equity holdings.
Securities-backed financing offers several advantages in this instance. First, it may actually contribute to boosting market liquidity. Second, it enables investors to access liquidity to increase or diversify their positions without sacrificing potential upside in their underlying holdings.
EquitiesFirst is also able to engage with holders of a wide range of listed securities, including thinly traded stocks.
And because it is a long-term financing arrangement, it could help investors ride out the turbulence if the Singapore market does become more volatile as it expands.
[1] https://www.bis.org/review/r230913c.pdf
[2] https://sg.finance.yahoo.com/news/sgxs-august-market-report-reflects-212526182.html
[3] https://www.sgxgroup.com/media-centre/20240909-sgx-group-reports-market-statistics-august-2024
[4] https://www.hkex.com.hk/Market-Data/Statistics/Consolidated-Reports/HKEX-Monthly-Market-Highlights?sc_lang=en
[5] https://www.cnbc.com/2024/06/13/singapore-wants-to-revive-the-sgx-south-korea-japan-may-have-answers.html
[6] https://research.hktdc.com/en/article/MzIwNjkzNTY5#
[7] https://www.businesstimes.com.sg/international/global/hong-kong-overtakes-singapore-world-financial-centres-ranking
[8] https://www.hangseng.com/en-hk/investment/market-express/top-movers/top-10-stocks/
[9] https://www.theedgesingapore.com/news/markets/singapore-exchange-insiders-cast-doubt-stock-market-revival
[10] https://www.grab.com/sg/press/others/grab-to-trade-on-nasdaq-following-successful-business-combination-with-altimeter/
[11] https://fortune.com/asia/2024/10/09/how-to-help-southeast-asia-stock-exchange-singapore-sgx-jenny-lee-ng-yao-loong/
[12] https://www.bloomberg.com/news/articles/2024-09-16/singapore-ready-to-make-bold-changes-to-revive-stock-market
[13] https://www.bloomberg.com/news/articles/2024-09-16/singapore-ready-to-make-bold-changes-to-revive-stock-market
[14] https://www.suss.edu.sg/blog/detail/how-the-sgx-is-wooing-asia-s-tech-listings
[15] https://asean.org/wp-content/uploads/2022/12/investment-report-2023.pdf
[16] https://asean.org/wp-content/uploads/images/2015/October/outreach-document/Edited%20Capital%20Market%20Development%20and%20Integration-1.pdf
[17] https://www.ft.com/content/656b387e-a21e-4200-9fb6-8e9474408412
[18] https://www.businesstimes.com.sg/companies-markets/pillar-singapore-financial-ecosystem-sgx-needs-help-build-investor-demand-chairman
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