And so it was, too, in the recent season of Singapore’s budget. This year’s “election budget” features more generous social transfers and support for the less fortunate. Yet, at the parliamentary debates that followed, there were still Oliver Twists and populists aplenty calling for additional spending on all manner of things.
For every dollar of tax paid, households at the bottom two quintiles receive $4 in benefits. Conversely, the top 20% of households get just 30 cents for every dollar of tax paid. Singaporeans, as an aggregate, are very fortunate. Prudent fiscal and economic management, plus the significant contributions from GIC, Temasek and the Monetary Authority of Singapore (MAS), have ensured that we can do more for businesses, households and individuals while keeping a buffer for potentially turbulent times without dipping into the principal reserves.
Despite the tumultuous Covid years, the government can project a surplus of $6.4 billion as this term ends. In contrast, Hong Kong’s budget announced the following week projected a deficit of HK$100 billion ($17 billion), no thanks to lower revenue from land sales, a traditional source of revenue that relies on sky-high residential property prices. Among other cost-cutting measures, 10,000 civil service jobs will be axed by 2027.
Meanwhile, to further encourage private philanthropy, Prime Minister Lawrence Wong announced $600 million worth of SG Gives matching grants, including $100 million each for sports and the arts.
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The contrast is also stark with the slash-and-burn in Washington by President Donald Trump’s First Bro, Elon Musk, and his DOGE. In his bid to reduce the US$1.83 trillion ($2.44 trillion) deficit in the US government budget, aid programmes, social spending, and Federal workers were all chopped.
To opponents, however, the juxtaposition of the vulnerable losing support, in contrast to Musk’s companies enjoying billions in subsidies and grants, is the perfect example of the Wild West free-wheeling capitalist Mecca that Maga promises. If the US courts are unable to slow or reverse the tide, it may herald a slippery slope back to the Victorian industrial workshops of Oliver Twist. The balance may have already shifted.
Ah Boys To Men
As Chew on This indicated earlier, the Equity Market Review Group has to delicately balance enabling and empowering capital markets while not distorting them. Ultimately, market discipline has to prevail so as not to allow free riders and provide a moral hazard for enriching a few at the expense of many.
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Measures proposed thus far include a $5 billion fund to be allocated to fund managers to invest in non-Straits Times Index (STI) stocks. There are also various other grants and funding for companies to launch an initial public offering (IPO). These measures have been greeted by a mix of cheering and cautious optimism but also brickbats, which is hardly surprising since Singaporeans are champion complainers.
For example, several existing mainboard and Catalist companies lamented that they have already taken the leap of faith to list on the Singapore Exchange(SGX) and thus won’t benefit from incentives for new listings. Will this, therefore, stem the tide of privatisations and hollowing out? Profitable companies that could benefit from several million dollars of potential tax savings and return that to their shareholders could, in theory, delist and then come back through another listing in some combination or M&A with another.
Whenever there are new policies, some will miss out. Unfortunately, a line has to be drawn somewhere. To be sure, if the measures to stimulate demand lead to broader participation by investors over time and revalue stock prices of mid and small-cap stocks closer to fair value, this, in most cases, should be worth more on paper than a straight tax break. So, it is a tricky situation. It may look like Money No Enough, but it is time for all players in the ecosystem to step up and mature from Ah Boys to Men, and that means listed companies have to improve their investors’ engagement activities and bring in new shareholders to light the fire.
Homecoming
Purists had earlier argued against investing our sovereign reserves, however minimal, on small caps. The $5 billion fund is not too big to be distortive but not too small to be trivial. The fund, for now, a one-off, is ultimately playing a catalytic, developmental role. It will be allocated mainly from the financial sector development fund, for which a significant component has been contributions from SGX dividends over the last 25 years.
The debate over whether this $5 billion is enough will continue, but one real issue, as Chew On This alluded to, is deployment. The local fund management industry has hollowed out to the extent that last year, there was only one small $100 million capacity fund whose mandate was purely based on Singapore — and hence negligible cornerstone capital for new IPOs to launch.
As such, it is critical to consider the talent and skills left in the industry to identify and support our SMEs’ graduation from the small- and mid-cap league. We had argued for the need to allocate beyond the big global fund management names, who may not only know less about this market segment but may also care less about the development goal of these catalytic funds.
A handful of old warhorses are still active in the local fund management industry — although one of them, Terence Wong of Azure Capital, has protested being labelled “old”. There are also funds run with expertise affiliated with the local brokerage houses. In my view, they should be given a real shot for an allocation of this $5 billion.
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A decade ago, when we had development funds to catalyse Singapore as a private equity and venture capitalist hub, we brought the big names in and created good quality jobs and employment opportunities. MAS also worked with GIC, who was familiar with the global names we were hoping to attract.
But our local managers, like Dymon Asia, did not get a share of the wallet. When the exits have been difficult here, and these managers found it difficult to raise new money, and with a more transactional relationship with Singapore, these big names may leave.
With this development goal in mind, policymakers must take the correct input from those in the local market vested in Singapore to create the right Singapore non-STI benchmarks in deciding how to allocate this $5 billion. The success of this move should not be measured by how many new global fund managers set up new funds here but by how effective this $5 billion will be in supporting the local market.
Homerun
For the purists who bristle at the “handouts”. It is interesting to explain how market discipline ought to work and that we are not simply handing out money to SMEs. On the other end, there are legitimate concerns that a one-off $5 billion, even assuming it is deployed right, is necessary and not sufficient — necessary to relight the fire as we discussed, but may not be sufficient to keep the flame alive.
Chew On This is delighted that some ideas postulated last year about restarting the local fund management ecosystem and creating local demand have been taken on board. Two weeks ago, we described what was released as an “initial salvo.” This is because while sensible deployment and regulatory changes will take time, we must still confront the need for sustainable pools of new capital to come in regularly.
That is how successful capital markets succeed. Private savings from insurance funds and public pension savings are regularly recycled to generate growth capital and liquidity for capital markets. No, this is not a call for our sovereign wealth funds to be allocated to Singapore. They should follow the mandate entrusted to them by the Ministry of Finance and invest globally instead of concentrating everything here where their size, even in part, will distort.
We are hopeful and have called for the rest of the ecosystem of banks, brokers, and asset and wealth managers to play their part in the Singapore market. However, we should not shy away from the structural debate that is still the elephant in the room: should all the incremental public savings generated annually be sent to GIC to manage together with our sovereign reserves? Or can the targeted returns of GIC still be generated if a portion, say 5%–10%, or equivalent to $2 billion to $3 billion, is funnelled annually to add to this initial catalytic pool?
For the purists who may shudder at this thought, consider this: Market discipline prevails when a pool of managers with an initial allocation has to compete to invest well within the targeted mandate. Assuming 15–20 managers are competing, they must ensure no moral hazard and free ride by competing robustly versus other managers. If there is an annual prize for the top-performing managers to receive an incremental allocation annually, they would be incentivised to be in the top quartile. Add on a penalty for being in the bottom quartile to have funds withdrawn, and they may be even more on their toes.
The Employees Provident Fund in Malaysia already has a similar mechanism in place. With new and consistent fund inflows to the market and managers rewarded for performance, they have just declared a 6.3% dividend for 2024. Several of our SMEs were listed across the Causeway last year, and more, such as UMS Integration and Grand Venture Technology, might follow suit. If you would pardon the pun, I Am Not Stupid, but I find it hard to imagine that Money No Enoughexists in Singapore for our orphans to have to Make it Big Big elsewhere. This is not Oliver Twist but balancing the Force.
Chew Sutat retired from the Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange. He was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
