The ailing Singapore Stock Exchange needs a catalyst, pronto. Despite the country’s strength as a financial centre, the SGX has had a poor showing in recent years, suffering from low trading values and lacklustre listings. What exactly is going on? We weigh in on what it will take for the local bourse to shake off the blues and get back in the game.
Words by DollarsAndSense, with inputs from the DrWealth editorial team
Singapore has long been touted as the financial hub of Asia, a global city and a successful nation. Yet, while we have gained relative recognition as a country with a strong stock exchange, we are still far from being the global or regional leader.
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The fact of the matter is, Singapore is really still too small a market to be the leading player. And with this really small market, we continue to lose out in terms of liquidity to larger markets.
Take the Shanghai Stock Exchange (SSE) for example, which has already seen 35 Initial Public Offerings (IPOs) this year, raising over US$5.3 billion from its market. Daily trading volume usually exceeds US$100 billion. By comparison, the Singapore Stock Exchange (SGX) has seen only three IPOs this year, and has a daily turnover that is sometimes less than US$1 billion.
It is not just numbers that tell the tale of a flagging exchange. The quality of companies listed on the SGX has also been lacking, with recent IPO companies experiencing volatile share prices. Disappointingly, the SGX has not seen a high quality foreign blue chip company choosing it as the stock exchange to be listed in for quite some time.
This has only been further exacerbated by the merging of the Shanghai and Hong Kong stock exchanges in November last year. The resulting Shanghai-Hong Kong Stock Connect allows companies to be exposed to a huge market through the China hinterland and yet remain global via the Hong Kong presence.
More tellingly, it reduces the SGX’s efforts in wooing the Chinese market and expanding into China to close to naught.
The only silver lining here is that currently, only Chinese companies are likely to benefit from this merger, provided that they can ride out the ongoing market slump. But the lesson remains: if the SGX doesn’t up its game fast, it faces real danger of being overtaken by other bourses, if it hasn’t already been.
We’ve seen better days
Other drawbacks that the SGX faced include its failed takeover initiative for the Australian Exchange in 2011 – which, despite giving SGX greater exposure, would probably not be enough to compete with the newly merged Shanghai-Hong Kong partnership – as well as the later penny stock rout, which saw $6.9 billion erased in just three days in October 2013.
(The SGX subsequently tried to reinforce tougher rules, such as introducing the minimum trading price of S$0.20 for mainboard-listed stocks, but only time will tell if these measures become effective.)
In addition, the SGX has been fighting an uphill battle with its infrastructure, as seen in the two major trading glitches in December last year. Following widespread outrage and public calls for CEO Magnus Bocker’s resignation, as well as a stinging reprimand by the Monetary Authority of Singapore (MAS), the SGX finally pledged to spend $20 million on infrastructure upgrades and $1 million on investor education.
However, just last week, the MAS had to step in again to issue a caution for trading SGX stocks after some volatility in share prices.
Taken together, these just go to prove one thing that investors have suspected all along: it is simply not tenable for a publicly-listed, profit-driven business like SGX to hold dual roles of revenue generation and market regulator. If anything, the MAS needs to step up to the responsibility of setting up a separate, independent body to regulate the market – similar to the model that has been adopted successfully in major markets like the United States and Australia.
Getting back in the game
With an ongoing leadership transition, the SGX will soon see a new Singaporean CEO, Mr Low Boon Chye, take the helm come 14 July 2015, just a few days away from now.
As CEO, Mr Low will inherit a business suffering from a struggling securities arm and face a tough time ahead in steadying the ship. Competition is undeniably stiff, what with stock exchanges around the world stepping up their game, coming up with alternative markets to capture more clients and growing larger by taking over rival exchanges.
Nevertheless, we believe there is still scope for the market to recover. All it takes is a shift in focus, or a bright new spark, to be the impetus for the SGX’s comeback.
One possible catalyst could be to position the SGX as a market for ASEAN businesses, and a platform for regional and international funds to get into ASEAN businesses. Another would be to become much more aggressive in persuading fast-growing neighbouring countries to list in Singapore. Perhaps by building on this niche, the SGX would be able to spur another wave of growth.
Past performance is not indicative of future returns. Just like Singapore, the SGX needs to innovate itself continually to stay ahead of the game, or risk falling even further behind.
The original article first appeared on DollarsAndSense.sg, a website that aims to provide interesting, bite-sized financial articles which are relevant to the average Singaporean.