The various measures to revive the Singapore stock market has seen some success, according to Minister Chee Hong Tat. Average daily traded value has increased 20% y-o-y to $1.8 billion in November, and the Straits Times Index has been hitting new highs, closing at 4,944.09 points on Feb 3 – a whisker shy of the 5,000-point mark.
Instead of just a handful of blue-chip STI component stocks hogging the volume, the number of Singapore-listed stocks with at least $1 million in average daily trading turnover has risen to 100, as indicated by SGX earlier.
However, Chee, whose main portfolio is to head up the Ministry of National Development, likens the bid for Singapore to be a more competitive market to a “never-ending marathon”.
“I hope this positive momentum continues, but we know markets have ups and downs. Our focus therefore must be to continue strengthening the competitiveness and attractiveness of our ecosystem,” says Chee who, as the deputy chairman of the Monetary Authority of Singapore, led the high-level market review committee whose efforts have sparked the current bull run.
“We cannot stand still and rest on our laurels because the competition for global capital is intense and fast evolving,” says Chee, speaking in Parliament on Feb 3. “We will continue to listen, adapt, and raise our game in partnership with the industry.”
In a bid to move forward, guardrails will be put in place where necessary as Singapore try new ideas. Also, there will be additional resources for public and investor education so that people understand the link between market volatility, risks and returns.
See also: An EQDP pivot could be transformational
Drive permanent change
The minister was responding to an adjournment motion from MPs Louis Chua and Jamus Lim, on how to further lift the Singapore stock market. “Through this adjournment motion, I hope we can make Singapore equities great again,” says Chua.
These two MPs have put forward suggestions that includes requiring companies to demonstrate how they will drive higher shareholder returns, holding companies accountable for disclosure lapses and encouraging local retail investors to invest in Singapore stocks.
See also: Doing what you’re told is no defence in Singapore’s capital markets
Chua cites as an example Korea’s value-up programme that could be implemented in Singapore. Korea’s value-up programme requires companies to assess capital efficiency, set quantified ROE and ROIC targets, and disclose dividend and treasury share plans. Korea has also amended its Commercial Act to expand directors' fiduciary duties to all shareholders, and directors themselves have to be accountable.
“I believe that the current recommendations by the review group may be necessary but not sufficient to truly drive permanent change,” says Chua.
Chua, whose day job is an analyst with an international financial institution, was drawing on his experience analysing companies and markets for more than a decade – a period that coincided with the decline of the Singapore market before the pick-up last year.
“We witnessed S-chip crises, market shrinkage as de-listings far outstripped new IPOs, and the painful erosion of investor confidence. Our market liquidity had fallen behind not just global bourses, but even regional neighbours,” he says, recalling the years when Bursa overtook the SGX.
In the 1980s and 1990s the Singapore Stock Exchange and the Hong Kong Exchange were viewed as competitors. Hong Kong is far ahead of Singapore in liquidity, market capitalisation, and IPOs.
Now, Singapore is putting in place its own variant of the “value unlock” programme and the key measure is a $30 million grant. However, Chua’s view is that small and newly listed companies may benefit from this grant but for the vast majority of companies, they can very much maintain the status quo after the review group’s recommendations are implemented.
“Companies face no additional disclosure or regulatory requirements to demonstrate how exactly they are going to drive higher shareholder returns or unlock value.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
“While we are asking the EQDP fund managers to deploy more than $5 billion in capital and expect returns, our listed companies feel no compulsion to demonstrate commitment to improving fundamentals,” says Chua.
He believes that Singapore ought to institute mandatory value-up disclosure requirements immediately. For a start, all listed companies should conduct formal board-level assessments of capital costs, profitability, and market valuation.
Next, companies must then disclose quantified ROE and ROIC targets across medium to long term time horizons and then lay down specific plans with annual progress reporting.
In an interview with The Edge Singapore last December, Shawn Ang, who manages Fullerton Fund Management’s new Singapore Value-Up fund (FSGV), says that as a fund manager, he looks at three fundamental indicators. “At the end of the day, what we are looking for is earnings growth, ROIC (return on invested capital) going up, ROE (return on equity) going up. That’s really what our main focus is”.
'High bar'
For Chua, disclosure alone is not enough – there must also be stronger enforcement actions and also better corporate governance. Last May, MAS announced that a committee is reviewing the Code of Corporate Governance. Chua says the refreshed code should hold companies accountable for disclosure lapses to instil investor confidence in Singapore’s governance regime.
Chua recalls the sorry episode of the once-high-flying commodities trader Noble Group, which allegedly committed accounting fraud and suffered systematic short selling and eventually went under.
In 2022, after a long-drawn investigation into the company’s disclosures, MAS imposed a civil penalty of $12.6 million, which Chua calls “noticeably disproportionate to the billions investors lost alongside the company’s downfall.”
Chua notes that Section 199 of the SFA requires that a material statement or information was false or misleading, but that the wrongdoer either does not care whether it was true or false or knows or ought reasonably to have known that the statement or information is false or misleading in a material way.
To Chua, breaching this law is a “high bar” and there ought to be “more robust disclosure obligations and enforcement actions relating to false and misleading statements and breaches of disclosure requirements.”
Minister Chee welcomes the feedback and accepts Chua’s suggestions that some requirements may have to be mandated. Ultimately, the companies themselves should have strong commercial interest to increase their own shareholder value, he says.
“With the right incentives and a clear focus on quality and sustainability, I am confident Singapore’s equities market will grow in depth, resilience and attractiveness in the years ahead,” says Chee.
