Singapore wants to revive the stock market. Could major Asian markets hold the answers?

Auditor of Singapore Exchange (SGX).

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For years, Singapore’s regulators have tried to boost the attractiveness of its stock market.

The city-state’s economy may be bigger than Hong Kong’s, but the total value of Singapore’s listed companies is about 7 times smaller.

The total listed value of the securities market on the SGX in May was S$798.55 billion ($590.47 billion).

Meanwhile, the Hong Kong Stock Exchange had a market capitalization of 32.9 trillion Hong Kong dollars ($4.21 trillion) at the end of May.

Analysts who spoke to CNBC say possible solutions include greater engagement with investors and looking to “validate” programs such as those in Japan and South Korea.

Liquidity in Singapore

Singapore’s stock market may have previously been described as “boring” and “unexciting”, but in reality, SGX’s overall performance Straits Times Index is stronger than the Hong Kong standard Hang Seng Index.

IST has seen annual gains every year since 2021, with the exception of 2023 when the stock market fell 0.34%. In contrast, HSI recorded four consecutive years of losses, including declines of more than 10% annually between 2021 and 2023.

However, Singapore’s stock market has been plagued by thin trading volumes and more hatchings than listings.

SGX’s turnover rate, a measure of market liquidity, stood at 36% for the full year 2023.

In comparison, data from the World Federation of Exchanges showed that the Hong Kong Stock Exchange recorded a turnover rate of 57.35% in the same period and 103.6% on the Japanese Stock Exchange, an indication that Japan saw total trades that exceeded its total market capitalization. .

Lessons for Singapore

1. Evaluate the programs

In a note on May 8, financial services provider CGS International suggested that one way to boost Singapore’s stock market could be to consider “value enhancement programs” in other major markets in Asia, such as Japan and Korea of the South.

Market regulators in Japan and South Korea have reorganized their markets, adopted new regulations and implemented programs to increase the value of their listed stocks.

While South Korea has yet to report any results from these efforts, CGS International noted some promising results from Japan.

As of the end of September 2022, 50% of shares listed on Japan’s main market were trading below book value, a sign that investors may think the company isn’t worth what it’s on paper.

Since the reforms began in 2023, this ratio has improved to 36% on April 15.

In Singapore, Maybank Investment Banking Group estimates that 67% of SGX shares were trading below book value, although CGS International noted that stocks such as real estate investment trusts are trading below book value due to the high interest rate environment .

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“We note that in the case of Japan and Korea, the determination to improve stock market conditions is supported by top-level management from stock exchanges and the involvement of academia, market participants and relevant government bodies,” CGS analysts said.

The Financial Times reported in May that SGX is considering proposals from the Singapore Venture & Private Capital Association to improve its attractiveness.

Citing people familiar with the matter, the FT report said government agencies such as the Monetary Authority of Singapore, the Economic Development Board and the Ministry of Trade and Industry were engaged in those discussions.

MAS told CNBC it has “received the proposals and is reviewing them”, while EDB declined to comment. MTI has not yet responded to CNBC’s request for comment.

2. Engagement of investors

Analysts from Maybank and CGS International also pointed out that Singapore companies need to boost investor engagement, which could revive interest in the market.

CGS said companies should consider making investor relations activities such as IR meetings, investor shows and analyst coverage a key performance indicator, saying IR events could spark interest in smaller companies.

Thilan Wickramasinghe, head of research for Singapore at Maybank Investment Banking Group pointed out that years of industry consolidation have resulted in massive under-investment in equity research.

As such, more research has focused on large-cap, liquid stocks at the expense of smaller stocks. “Without gaining enough investor attention mid-cap stocks suffer from lower valuations and liquidity,” said Wickramasinghe.

This creates a negative feedback loop where illiquid stocks become unattractive for research coverage, leading to lower and lower valuations and liquidity.

He said that “increasing engagement with investors and providing better guidance to the Street are good things that can drive value.”

On the exchange side, some possible measures include incentives, such as tax benefits and regulated listing fees for companies that improve their rating, CGS said.

3. Restructuring

However, “there is no single magic solution,” noted Wickramasinghe, who said solutions for Japan and South Korea may not necessarily work for Singapore.

For example, Japan and South Korea are looking to increase dividend payouts, but Singapore is already a key dividend-led market in the region and this segment of yield investors is already well catered for, he points out.

According to him, companies should continue to invest in improving their capital structures and focus on driving higher profits, which the markets tend to reward.

Wickramasinghe noted Singapore-listed companies such as Sembcorp Industries AND Keppel Corpthat have restructured their capital structures over the past few years and outperformed the “mass” market.

Call to revive stocks

To be sure, calls to revive Singapore’s stock market are not new.

In 2015, a group of remisiers in Singapore signed a letter of appeal to the government demanding urgent measures to restore confidence in Singapore stocks.

In February this year, the Society of Remisiers again urged the financial authorities to do more to revive interest in the Singapore stock market.

Singapore’s parliament debated the issue and Finance Minister Lawrence Wong stressed that “conditions remain challenging for the Singapore stock market” adding that with interest rates “higher for longer”, high-growth companies are opting remain private and those that do list prefer markets like the US

Wong, who is now also the prime minister, said that while the government will continue to encourage Singapore-incubated companies to list in Singapore, “the final decision to list will be made by the companies”.

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