Hong Kong, of course, continues to attract blockbuster IPOs. However, Singapore is no slouch as a safe-haven market, where valuations remain undemanding, earnings are growing, and the currency is stable. Furthermore, Singapore is continuing to play to its strength as a choice location for companies with an apparent Asean angle, or for REITs, as shown by the recent listing of NTT DC REIT.
Practical recognition
When the market review group was formed, certain key market players, such as S Nallakaruppan, president of the Society of Remisiers, urged for a Big Bang IPO of a large local company that could potentially reignite market excitement, similar to the 1993 IPO of Singapore Telecommunications (Singtel). A handful of large local companies, such as Mapletree Investments, PSA and SP Group, are still held privately by Temasek. When asked recently, the state investment agency’s senior executives were not committing to whether they will list these entities.
From Ng’s perspective, what is more important is that the review group, which drew its members from different parts of the market ecosystem, has shown clear alignment that more can be done for the local market, which is more effective than what various parties be it GIC or Temasek or brokers or fund managers can do within their own respective mandates. “All of them do have an interest in a vibrant stock market,” he stresses.
Before the local market experienced this recent surge, a couple of the big local names had gone on to list elsewhere, rather than on SGX. The exchange remains very focused on IPOs, and if it has its way, these companies should list in their home market. However, Ng recognises that investors here are pretty sophisticated. They can easily trade overseas stocks and he certainly does not expect them to have only Singapore stocks in their portfolio.
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Attracting companies already listed elsewhere to do a secondary listing in Singapore is therefore a way to broaden the exchange’s offerings. In addition, two years ago, SGX began introducing a range of Singapore Depository Receipts (SDR), packaged by brokers such as PhillipCapital, based on blue-chip companies already listed in other markets, including Hong Kong and Thailand. Trading value averages around $5 million to $6 million a day. Besides helping with overall market activity, SDRs could be a way for investors here to trade specific big Singapore-based names that are listed elsewhere. “These are different ways of us adapting to circumstances,” says Ng, and also a “practical recognition” that SGX cannot possibly list every single stock.
Now, efforts to revive the local market did not start with the formation of the review group, and certainly did not start with the $5 billion Equity Market Development Programme (EQDP), the biggest headline thus far from the review group.
Over the years, previous efforts have included launching a $1 billion local enterprises fund in 2021, attempting to capitalise on the US-led spac fever and many other initiatives that were not as high-profile. In hindsight, Ng points out that these are rather piecemeal. “They are all well-meaning, but we know that these measures have to be self-reinforcing, such that the liquidity flywheel can start turning. Liquidity begets liquidity on its own, but sometimes it is quite difficult,” he says. That is why the review group is clear that there is no silver bullet but rather a collective approach from multiple angles that is needed, he adds.
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A lot of attention has been focused on attracting IPOs and when big listings do take place, they naturally grab headlines. After three years of morale-sapping privatisations, the momentum of new listings has finally picked up this year. The exchange is actively in talks with numerous additional IPO candidates, says Koh Jin Hoe, SGX’s head of capital markets, global sales and origination. In a sign that the lure of this market for some companies has not entirely disappeared, some of the potential listings include those of companies that had previously listed and delisted here, says Koh in a separate interview.
Enhanced research
However, for the entire market to be more vibrant, a significant amount of low-profile work needs to be done. For example, SGX is making an effort to go upstream and prepare the investment community, even if the results will not be immediately apparent and perhaps never will be.
Besides pushing for more research on under-covered stocks, SGX is also promoting coverage of companies that are not yet publicly quoted but are deemed potential listing candidates. By doing so, the investment community can gain better and earlier understanding of these companies, which would help prepare the ground for an eventual listing.
In addition to covering specific companies, SGX has already pushed for research reports on particular sectors in which these potential IPOs are located. For example, a sector report explaining how the software-as-a-service business model works was published before the Mainboard listing of Info-Tech Systems, which adopts this model. Other sectors that may be examined include digital banking, says Ng, where investors can be educated on why such entities ought not to be valued in the same way as traditional banks.
Given that the traditional brokerage-led research model relies on coverage of listed companies being indirectly funded by trading commissions, in contrast, private research lacks a natural economic model; therefore, SGX is stepping up its efforts. “It helps us bring the level of investor awareness, especially on some of the newer business models, into a greater sphere of awareness and knowledge,” says Ng.
Building trust
At times, rather than SGX, other players take the lead. For example, several brokers such as PhillipCapital and OCBC Securities have been promoting the custody of shares. Instead of individual investors holding their shares in their own CDP accounts, they transfer over to their brokers to hold in custody. This means brokers can have a clearer picture of the shares investors hold and can then be better placed to help suggest how these shares ought to be traded and how their investment portfolios can be constructed.
Now, some cynical investors may say brokers merely want their clients to trade more frequently to earn commissions. Many investors here are known to be more eager to buy and hold for the regular dividends than to make frequent trades.
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Ng acknowledges that such trust will not be built up overnight, but there are certain advantages to such arrangements. For example, when custody shares are used as collateral, trading costs can be lower if financing is tapped. “There are the pros and cons that people will have to evaluate. I’m glad that brokers running this scheme recognise the value in that, and if they can get clients to transfer, that’s only one part of the equation. It is how you build that relationship, how you convince your clients to do more,” he says.
The $5 billion announced by the market review group is coming from the Monetary Authority of Singapore, the industry’s regulator, including SGX. The exchange, as a listed entity itself, is the obvious beneficiary if the local market becomes more vibrant. When asked if SGX would consider injecting some of its own funds into the market in addition to those of MAS, Ng does not think so. “We operate as a platform, and we are a market operator, and we do have the RegCo. For us to inject balance sheet into investments and try to pick companies will be very challenging. There are better uses of our strengths, which are the neutrality, objectivity and transparency running this platform,” says Ng.
What SGX has been doing is to run marketing programmes alongside the brokers. It does not involve vast sums of money, but it is intended to demonstrate the exchange’s willingness to partner with various players to help drive the market. “These are all objectives that we share, and we are prepared to share a bit of the financial cost,” he says.
‘Index-worthy’
Another key ingredient for a market to perform well, unsurprisingly, is for more of its listed companies to deliver value to their shareholders.
A growing list of Temasek portfolio companies, including DBS Group Holdings, Singtel, and Singapore Technologies Engineering, have enjoyed outsized performance due to their strong returns and ability to grow earnings, as well as provide clear guidance on dividends and buybacks.
As STI heavyweights, these companies, along with the other two local banks and other component stocks, are in a way competing to unlock value and deliver better returns, driving the index to its current record levels.
In a virtuous self-reinforcing loop, when these companies perform well, they attract a larger pool of capital, which in turn lifts their share prices, thereby further encouraging these companies to continue their success.
Unfortunately, the converse could also happen, where certain smaller caps go on to suffer from lower liquidity and valuations. As it stands, the 30 STI component stocks account for approximately 85% of the trading turnover, leaving relatively little for the remaining 600 or so companies.
From Ng’s perspective, one way to make the market more vibrant is to turn the spotlight on more of such “index-worthy” stocks now outside of the STI 30. They could actually be very good companies, but they may not have sufficient liquidity. This also complements the focus of the $5 billion EQDP on a wider range of companies, and not just index component stocks.
SGX aims to be the platform where more companies can reach a broader set of investors and communicate effectively, so that when they want to tap markets for additional capital, the investment community already understands their stories and will price capital at levels fair to both themselves and the companies. “This is our role and we need to have a platform for them to do all these things,” says Ng.
