Market observers have taken to LinkedIn to voice their concerns over the first set of proposals submitted by the Monetary Authority of Singapore’s (MAS) equities market review group, which includes helping local mid-sized companies access growth capital and introducing tax incentives to attract companies and fund managers to list here.
The initial set of measures, which MAS announced on Feb 13, have been submitted to Prime Minister and Finance Minister Lawrence Wong. More details will be released on Feb 21.
The proposals come six months after the review group was set up to explore ways to improve liquidity in Singapore’s equities market and attract new listings to the local bourse.
Some industry professionals, however, were hoping for bolder measures.
Roger Ng, a senior director at financial communications firm Edelman Smithfield, says the recommendations “obviously left much to be desired”.
In a Feb 17 post, Ng says: “Making it cheaper and easier to list in Singapore will not resolve the issue. Quality companies will not be deterred by more stringent requirements if they can raise money at desired valuation[s].”
See also: From The Edge Singapore's 1,000th Issue: The scandal of S-chips
While MAS has promised to share more details at the end of the week, Ng says it is “worrying” if tax incentives are fronting the proposals as “the best idea on the table”.
In addition, Ng questions if Singapore’s status as a financial hub “really needs a strong exchange”. Switzerland, he says, is a “good example” of a country with global banks but with a small bourse.
Ng accompanied his post with a screengrab of a Feb 14 story by The Edge Singapore on Citi Research downgrading Singapore Exchange (SGX) to “sell” after MAS’s announcement.
See also: Revitalising SGX: Beyond liquidity injections
Citi analyst Tan Yong Hong expects recent optimism over the potential impact of the review group to “unwind”, and he slashed his target price to $11.90 from $13.10.
‘Won’t guarantee a happy ending’
Meanwhile, TSMP Law Corporation joint managing partner Stefanie Yuen-Thio says “tax incentives may be a lubricant for an entry into the Singapore market but won’t guarantee a happy ending”.
In a Feb 15 post, Yuen-Thio says the market cheered the launch of the review group, which promised “bold changes”. “I can only hope that subsequent announcements will be more game changing than damp squib. That would be a sad anticlimax.”
In a subsequent post, Yuen-Thio notes that emerging tech companies — which could be among the target listing aspirants — already “don’t make profit”. “I’m not sure how tax incentives will help.”
Again in a separate post over the weekend, Yuen-Thio adds that financial subsidies for companies seeking an initial public offering (IPO) already exist. “Unless they are huge incentives, I think liquidity and poor market valuations will continue to be the unaddressed elephant in the room.”
She awaits more information from the review group. “This is only the first slate of announcements from the #MASWorkingGroup. Looking forward to the promised ‘bold’ moves.”
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
‘No Einsteins’
Former Temasek director Lee Ooi Keong pulled no punches in his Feb 15 post, charging that the current proposals will only attract “poor-quality companies who can’t meet their own country’s listing requirements”, reminiscent of China-based S-chips that flooded SGX for the decade or so from 2005.
“Most of these S-chips eventually collapsed due to poor corporate governance, leaving investors with massive losses & driving them away from the market. And the MAS review group is proposing to do the same thing again!” says Lee, who had earlier in February penned his own proposals for an issue of The Edge Singapore in a piece titled “Revitalising SGX: Beyond liquidity injections”.
“Albert Einstein once said that the definition of insanity is doing the same thing over and over again and expecting different results. At least one thing is clear — the MAS review group are definitely no Einsteins,” says Lee, a member of the Singapore Institute of Directors with 30 years of experience in investments, corporate performance and governance.
Lee points out that 68% of SGX investors are institutional investors. They must be certain that the risk-reward of their investments are favourable and that companies must be “well-run with potential for capital appreciation or dividend yield”, he adds.
“If both institutional and retail investors are choosing not to invest in Singapore stocks in favor of other countries, this means that Singapore stocks do not have a favorable risk-reward,” says Lee. “Simply put, which institutional investor can justify investing in the Straits Times Index, which returned 1.4% p.a. over the past 10 years versus 11.4% p.a. on the S&P 500?”
Other suggestions
Some professionals offered their own proposals on LinkedIn. Sam Phoen, a finance adjunct lecturer at Singapore Management University, lists a few “low-hanging fruit”, which he claims he has shared with the review group.
These include:
- Reducing the board lot size from 100 to 1 for “most listed companies”
- Reducing the minimum tick size (or the minimum bid size) and dropping the 30 ticks order restriction
- Reducing clearing fee and trading fee, “even if just for a limited period”, to encourage trading
- Subsidising research into Singapore-listed companies “as fair value analysis would be too challenging for most retail investors”
TSMP’s Yuen-Thio, meanwhile, outlines an idea she heard from a “market participant” about involving Singapore’s sovereign wealth fund.
“Take $20 billion from Central Provident Fund (CPF) funds and have this managed by a pool of third-party professional fund managers, mandated to invest in smaller Singapore companies (95% of trading volume is concentrated in companies with market capitalisation of $1 billion and up),” writes Yuen-Thio. “Every three years, the fund managers are evaluated with the worst-performing [one] knocked out.”
She adds: “I understand concerns with letting retail investors put their retirement funds in the market but surely professionals would do a better job.”
‘Not sustainable’ to involve GIC, CPF
That said, the review group is not involving GIC and CPF; Second Minister for Finance and MAS deputy chairman Chee Hong Tat said on Feb 13 that the approach is “not sustainable”.
“GIC’s mission is to preserve and enhance the international purchasing power of Singapore’s reserves. Within its mandate, GIC is able to invest in Singapore companies with a global footprint and can generate good returns,” says Chee, who also chairs the review group. “So, we should let GIC make their investment decisions professionally and commercially, and not require them to have a specific allocation to local equities if such investments result in lower overall returns, as doing so would not be in the best interest of Singapore and Singaporeans.”
Earlier this year, Deputy Prime Minister and Minister for Trade and Industry Gan Kim Yong said it is “not practical” to rely on sovereign funds alone to sustain and support Singapore’s equity market. Instead, any use of public funding has to catalyse commercial capital, in order to sustain trading interest in the local equities market over the long term.
Read more about the equities market review group:
- SGX shares close 5.8% lower after MAS equities market review group’s first proposal (Feb 14)
- MAS’s equities market review group proposes tax incentives as part of measures to boost Singapore’s bourse (Feb 13)
- Revitalising SGX: Beyond liquidity injections (Feb 6)
- ‘Not practical’ to rely on sovereign wealth to support, sustain Singapore equities: Gan Kim Yong (Jan 2)
- SGX Group chairman calls for ‘bold and decisive actions’ to solve stock market’s ‘longstanding issues’ (Jan 2)
- Making the Singapore market great again (October 2024)
- Revitalising Singapore equities market ‘not an easy task’, says Chee Hong Tat (September 2024)
- MAS’s equities market review group holds first meeting, unveils 31 workstream members (August 2024)
- MAS launches review group to strengthen equities market; recommendations to come within a year (August 2024)
