Singapore wants to revive SGX. Korea, Japan may have the answer

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

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

Total listing value of stock market on SGX in May it was 798.55 billion Singapore dollars (590.47 billion USD).

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

Analysts who spoke to CNBC said that possible solutions include engaging more with investors and finding ways to “enhance the value” of programs like in Japan and South Korea.

The Singapore stock market could previously be described as “tasteless” And “Not interesting” — but in reality, the overall performance of SGX Straits Times Index stronger than the Hong Kong benchmark Hang Seng Index.

The STI has seen gains every year since 2021, except for 2023 when the stock market fell 0.34%. In contrast, HSI recorded 4 consecutive years of losses, including a decrease of more than 10%/year between 2021 and 2023.

However, the Singapore stock market encountered difficulties due to low trading volume and more delistings than listings.

Revenue velocity at SGX, a measure of market liquidity, stood at 36% for the whole of 2023.

In comparison, data from the World Federation of Exchanges shows that the Hong Kong Stock Exchange recorded a turnover rate of 57.35% in the same period and 103.6% in the Japan Exchange – an indication that Japan has total transactions exceeding its total market capitalization. .

The The Financial Times reported in May that SGX was considering the proposals from the Singapore Private and Venture Capital Association to improve its appeal.

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 involved 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. Investor participation

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

CGS said companies should consider making investor relations activities – such as IR meetings, investor presentations and analyst coverage – a key performance indicator, At the same time, IR events can attract the interest of smaller companies.

Thilan Wickramasinghe, head of Singapore research at Maybank Investment Banking Group, emphasized that years of industry consolidation have led to a major underinvestment in equity research.

Therefore, many studies have focused on large-cap stocks, which are more liquid than smaller stocks. “Without small- and mid-cap stocks attracting enough investor attention, they will suffer from lower valuations and lower liquidity,” Wickramasinghe said.

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

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

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

3. Restructuring

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

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

For him, companies should continue to invest in rationalizing their capital structures and focus on delivering higher returns, which the market tends to value.

Wickramasinghe points to Singapore-listed companies such as Sembcorp Industrial And Keppel Grouphave restructured their capital structure over the past few years and have “massively” outperformed the market.

In 2015, a group of people deposited money in Singapore signed the appeal to the government seeking urgent measures to restore confidence in Singapore stocks.

In February this year, Association of Remasters once again called on financial authorities to do more to stimulate interest in the Singapore stock market.

Singapore’s Parliament debated the issue and Finance Minister Lawrence Wong emphasized that “conditions remain challenging for the Singapore stock market” and that interest rates are “higher for longer”. , high growth companies are choosing to go private and listed companies prefer the market. like America

Wong, who is also 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”.