Wolf Money(The Demise of The Singapore Stock Market)

 

(Credit: Yahoo Finance; Last index high of 3900 in 2007, 16 years and counting. Lost decade of Singapore Market)

I spent two nights thinking about this write up since it is a subject close to my heart. The passion and concern I had for our stock market are real. I hope SGX can see my commentary in a positive light. It is about solving problem that matters, no witch-hunting was intended.

During my last monthly update. I am critical about SGX for not doing enough to promote the vibrancy of our stock market. After the blog, I have been getting more SGX senior executives looking at my LinkedIn profile. I hope people at SGX can see it as constructive criticism. I want to make my point of view clear before anyone get an impression that I am grinding my axe on our stock market. I love Singapore market, I am also a bull on Singaporean companies. How could I not love our stock market where I allocate most of my investment? The declining interest in our stock market did not happen overnight, it started more than a decade ago or earlier in my observation, any reversal of that falling trend anytime soon seems unlikely unless we put our minds and efforts to improve the situation. If we allow our stock market to drift, the outcome would be similar to our National Football Team. Reinvention is key to survival for any business, more so for any stock exchange.

SGX focused on derivatives and synthetic does not bring much intellectual property to the table in my opinion. The recent SGX Nifty dispute with National Stock Exchange of India over IP served as a reminder on the importance of having strong IP. I don’t have full knowledge of the settlement but it does gave an impression SGX was getting the shorter end of the stick. SGX after 23 years of painstakingly building a profitable derivatives business around the Nifty brand had to surrender 50% of their revenue and market autonomy to NSE. Trading of Nifty with opened contracts worth USD 7.5b(SGD 10b) had to move to the Gift City, India. It seems any exchange that owns the IP can arm twist anyone to give up a profitable business even with the sacrosanct of a legal agreement. It maybe India now, it can be China next. Who knows? I would like to point out a potential future scenario, if Nifty or Gift business grows bigger in years to come, NSE International Exchange might not even need SGX to serve as a clearing function. With trading of Nifty shifting to India, did they just increased the vibrancy of the India Stock Exchange at SGX’s expense? Financial commentators in India were jumping in joy, claiming it as a major victory for the India financial market. If NSE is claiming victory, what does that mean for SGX? Just to reinforce my point, without strong listed companies, there is no moat to any exchange.

*Nifty derivatives contracts were the second largest volume contributor to SGX’s equity derivatives volume after SGX FTSE China A50 index futures.

(Credit: Business Times ;I agree with the panel we need a fund to pull ourself out, I have the solution without the moral hazard of using tax payers money, below)

One suggestion is for SGX to lobby the government to change the composition on the types of investments a family office can made when they set up offices here in Singapore. Our country had been attracting many foreign family offices to our shore. MAS has certain leverage on those family offices seeking safe haven in Singapore, having an amount capped on property investment and allocating a minimum of let say 10% of that amount or any percentage the authority is comfortable to Singapore listed equities could help lifted the liquidity of our struggling market. The cap on property investments also allow the elevated property market to deflate which the government had trouble taming. The only market that is not in a state of bubble is our stock market. With greater liquidity from family offices, higher valuations for our market could be obtained, more IPO aspirants will want to list in our market. Liquidity is key to market valuation. We should let the family offices do something for our market since they are enjoying a safe haven for their capital and a preferential tax rate of 10% compare to the usual 17% corporate rate currently. Playing Devil advocate, How about moral hazard of directing family offices capital to save our stock market? The same thing can be said for property sector and managed fund business that had benefited from steady flow of capital from family offices into Singapore. Stock market is an important ecosystem of our financial market, beside the family offices are buying into our stock market at decade low valuation therefore a win win for all parties. Our market is -2 standard deviation from average valuation.

(Credit: MAS website; The stock exchange had lost 124 companies during a 9 years period, figure would have been higher if 2023 numbers were added)

No good business want to list in an undervalued market which affected their own company’s valuation and ability to raise fund. The notion of relying on foreign funds to buy our local stocks is at best questionable. We seriously can’t expect funds that mimic the MSCI index to buy into our local market given we constitute a minuscule 0.32% weightage on the global MSCI index. The global fund managers can give Singapore market a miss without feeling any impact of underperformance or outperformance. With only 0.32% weightage, it really doesn’t move the needle in any way shape and form. I hope SGX can seriously considered any suggestion that can revive our market. A task force comprising all stakeholders including retail investors, brokers, lawyers, regulators, bankers, accountants should be set up to find solutions on the matter. We have a world class airport, sea ports and a world leading financial wealth hub, we can’t afford our stock market to be sluggish. Our exchange needs to do better. Our total market cap of mainboard and Catalist listed companies excluding debentures, loan stocks and warrants had dropped more than 15% from SGD 997b in 2014 to SGD 830b in 2022. I suspect the 2023 figures would have been lower. Total companies listed on Mainboard and Catalist had decreased by 124 over the past 9 years since 2014. To be fair to SGX, new listings across the world exchanges had fallen due to rising competition from private equity funds and other alternative sources of funding but that itself doesn’t half explained the decade old underperformance of our market. There are also subjects pertaining to perceive lack of corporate governance and quality in some of our listed companies that need addressing too. I leave the subject to the experts. I wouldn’t discuss them today.

(Credit: MAS website : Drop in total market capitalisation over the course of 9 years)

The ball is in your court SGX. Even the most hardcore fan is struggling to find reason to stay vested in Singapore stock market. This will be my last post on this subject before I start sounding like a broken record. If SGX finds my suggestion worth considering, I am more than willing to contribute and to give my input in a suitable forum. Real change can only come from within. SGX, If reviving our stock market falls in the “too hard category”, selling the exchange to a bigger stock exchange group can be an option. Let the acquirer do the hardwork of reviving our stock market. With delistings overwhelming listings, there is no time to sit on our laurels. A walking zombie serves no one interest. God Bless everyone and God Bless our stock exchange. 

*No malice intended. Just a concern member of the public on the future of our stock exchange.

*Not vested in share of SGX(short or long)

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