Wolf Money(My 15 points wish list for the Singapore stock market review committee)

 

(Source: Business Times)

As we head towards the end of the year. Everyone will have their own resolutions for 2025. If fairy godmother could grant me a wish list for our stock market, these will be my wish list. I hope some of the suggestions can be considered for the improvement of our exchange.

MAS has nominated a group of stakeholders for a comprehensive review on how to revive the Singapore stock market. The background of the review was well reported, which I can summarise in one sentence. Capitalists and investors have a tough time finding any reason to raise money and invest in our market. 

The poor performance over the last decade was well reported. Although the recent uptick in our market is an encouraging sign, but most small and mid-cap companies are struggling to gain attention for better valuations. Besides, the STI index is supported by the fabulous four, namely the three local banks and SingTel. If one is not invested in the banking stocks or SingTel, the portfolio would have underperformed. The fabulous 4 constitutes more than 50% weightage of the STI index.

Since we are heading towards a new year, I am putting in my suggestions as a retail investor for the committee to consider. I thank the committee for doing mission-critical work to revive our market.

(Source: The Edge Singapore; Another 15 companies went through the delisting path since last year, currently listings down from 635 to 620)

1.) Strengthening corporate governance and listings rules

Rules should be strengthened in the area of disclosure inline with the security and futures act. Without strong rules to protect investors, there will be no confidence in our market. IPO issuers and managers should have more skin to the IPO they churned out. How many time shortly after an IPO, the company goes into profitability issue? With some companies blatantly defrauding investors. Although no one can predict the volatile nature of doing business. Tough laws should go after the originators if any wrong doings are found. A fine of few hundred thousands or even millions wouldn’t go far in discouraging the bad actors in our market. A minimum mandatory jail sentence should be imposed.

In regulation, Regco should house under the branch of MAS to ensure there are no conflict of interest with the commercial activities of the exchange. I suggest a newly created role of “a stock market czar” that report directly to the Ministry of Finance on the progress of those companies under the watchlist. Delisting rules should be crystal clear without the ambiguity. It shouldn’t be seen as arbitrary under the whim and fancy of the officer in charge of making those decision. It is hard for any retail investor to navigate the complexity surrounding delisting rules.

2.) Avenue for grievances

A Fidrec-like organisation for retail investors to voice their grievances and to seek recourse to market wrong doing by financial institutions can promote market discipline more effectively. It will be a cheaper alternative to expensive court procedures which the retail investors can ill afford. 

3.) Minimum IPOs float and quality of listings

IPOs should be subject to a min. float of 40% with retail investors getting at least 15% of the IPOs. I have observed an increase in “Initial Private Offerings”. If shares are concentrated within a small group of investors, it is more at risk of market manipulation. To be honest, the IPOs launched over the last few years are companies lacking excitement and business prospects. It does give an impression that our exchange is scratching the bottom of the barrel for allowing those unsavoury listings. I thought some Bak Choi Mee chain stores might have better prospects than some of our listings. It is simply not good enough for our exchange, which prides itself on being one of Asia’s best. 

4.) Independent directors, Property Valuers and IFAs

The angst of investors centred around the lack of protection, especially those who are supposed to speak up for minorities are left wanting. IDs, property valuers and IFAs should be appointed by SGX directly so that those who are task to speak their mind can do so without the backlash from the listed companies. IFAs appointed by sgx during a takeover offer will allow those service providers to give their unbiased view and to speak their mind without fear or favour of them losing future businesses. IDs should be chosen from a list of qualified people vetted by SGX. All listed companies directors should undergo a mandated minimum 60 hours for continue education annually.

5.) Investors’ education and roadshows

I have spoken about more young investors born after 2000s having more interest in overseas companies than our listed companies. Young investors whom I have spoken to could tell me more about Tesla and Alibaba than what they could about ST Engineering. If our young investors ain’t keen on our market, where will the next generation of Singapore stock investors be coming from? I would like to suggest SGX in collaboration with MAS to organise an annual investors’ conference for retail and institutional, similar in size to our Singapore Aerospace Show, to showcase our listed company. Something like a beauty pageant where all listed companies will be given a chance to showcase themselves to the public. I do think this will attract advertisers and like-minded sponsors to raise their public profile. SGX should double down their efforts towards promoting our equity market by bringing our local listed companies on an overseas roadshow. Local engagement with investment clubs in tertiary institutions can help create awareness about investing in the Singapore market and to cultivate the next generation of local investors. In this aspect, SIAS can play a bigger role.

6.) Cast the net wider for views

The review group showed a serious lack of diversity. Investor relations practitioners, brokers and retail investors’ representation are lacking in the review group. What is the point of having this review where your main customers, the brokers and retail investors are not consulted on the process. They are the ones with battleground experience. Our market is in such a deplorable situation because we failed to listen to the customers previously. If we use a top-down approach again, the result wouldn’t be any different from the past. A bottom-up approach is needed. Listen to what your customers want. The current review group should be permanent, it shouldn’t be a one off just to fire fight the current situation. As the financial environment evolves quicker, regular meetings like the current review task force can help to formulate policy to aid our capitalists and investors quickly.

7.) Long duration of the review 

The review group was given a 12 months window to come out with a revival plan.12 months is a long time to do a review. I suggest any plan agreed upon by the review group to go live during the course of the 12-month discussion. When one is fighting a war, there is no time to clean the boots before firing. During a fire fight, you throw whatever sticks onto the wall. There is no time for long coffee break, our market is losing listings at break neck speed. I will encourage an “implementation on the go” approach. There is no time to rest on our laurels. To those in the review committee, it may just be another committee requiring your involvement, but to many in the securities industry, it is their livelihood and the survival of our stock market at stake.

8.) Bring back quarterly reporting

The review group should discuss with ARCA how to bring back quarterly reporting. There are people against the idea because it raises the cost of auditing. The purpose of the quarterly reporting is to bring back some anticipation and excitement to Singapore companies. Even a single page statement showing revenue and profit is good enough to keep investors interested. Some listed companies are doing it voluntarily. A quarterly reporting regime keep the listed companies on the edge of their seats. To me quarterly report can act as some form of advertisement for the listed companies. It acts as a report card to sell themselves to the general investing public. Quarterly reporting also helps the investors keep track of the company’s progress.

9.) Blockbuster's IPO listings

Temasek can listed some their privately owned businesses. Mandai Wildlife Group, PSA Corp and Changi Airport Group are prime candidates to spice up our market. We could offer incentives for local companies like GRAB and Sea Limited to have a secondary listing in SGX. Listings can also lower the percentage of private equity in Temasek portfolio.

10.) Mandating a certain percentage of family office funds into Singapore listed equity 

From what I know, family offices are required to invest in Singapore companies or fund managed out of Singapore, but there are no requirements for them to invest in Singapore locally listed companies directly. Given there are 1650 family offices in our country and many more in process of joining. We could bear hug some of that capital to grow our stock market. A mandated 10% of that money coming to our country can be earmarked for our equities can help improve liquidity for our market, in process improve valuations and pipeline of IPOs. No good business want to sell into an undervalued market. We want the family offices to be active capital. We don’t want free loaders coming to our country just to enjoy the safety and tax incentives for their money that our country provides without their commitment to growing our financial sector, in particular our stock market. If we don’t make use of the family offices while they are here, do we wait for them to flee our shore for other countries when other countries offer better tax incentives? By having them invest in our country, we are asset capturing them. The last thing we want are family offices running a skeleton workforce employing a couple of staffs operating a two stocks only portfolio.

11.) Allowing Trading Representatives(TR) to incorporate a company to manage funds

Trading representatives used to be the intermediary of the stock market until internet trading took away their role. Trading representatives play an important role of greasing the wheels of the stock market. Allow them to run their own fund, moving them away from transactional fees. The better TR good at managing money will raise the standard of the industry. The poor one will die of natural death because no one wants to invest in an underperforming TR fund. A sandbox trial involving some TRs managing a small amount can be initiated.

12.) Overly bothersome ESG reporting

There is a growing workload on listed companies doing ESG reporting. Although I am for improvement on ESG, but having listed companies bogged down by excessive ESG reporting will be taking away precious time from the management of listed companies to concentrate on running their business. ESG reporting requirements are getting tougher. I am sure we want our listed companies to concentrate on the business side of things. If there is no profit, there is no glory on putting the company on the high pedestal of getting ESG reporting right.

13.) SGX to freeze any fees increase for the next 5 years

It is important to get our stock market right before any fees increase. It is fair to expect a certain improvement on our stock market before we start talking about improvement in fees income for SGX. I am for any increases in trading fees and listing related fees if market conditions improved.

14.) SGX management to have more skin in the stock market

Executive compensation is based on group’s overall profit, but there is no kpi relating to the performance of our stock market. I suggest some compensation to be in line with the health of the Singapore equity market. Numbers of new and current listings and the overall market capitalisation of the Singapore stock market should be taken as key performance indicators when the SGX’s board formulates key executives compensation. The lack of incentives is clear given the cash equities business only contributes less than 30% of SGX overall revenue. By all means, pay the key executives millions if they can revive the stock market. A striving equity market is a key responsibility of our exchange.

(Cash equities losing ground, accounting for only 27.2% of SGX’s revenue)

15.) Changes to accounting policy. 

I would like the authority to consider mandating all listed companies to do a yearly valuation of their investment properties. Currently, listed companies have the option of using the fair value or the cost accounting method to value their investment properties. Some companies choose to go with the cost method thus creating a huge valuation gap between the RNAV and NAV as legacy properties held under books have appreciated substantially over the years. The rule change will help reflect an updated value of the listed companies. It also prevents listed companies from “hiding” value behind accounting rule. IRAS could give a tax grant for all companies doing yearly revaluation. An update value of the company’s properties helps the market to set a fair price for those undervalued shares. There is no value in the accounting information provided by the listed companies if the true worth of the companies is allowed to be suppressed by non-progressive accounting rules.  

I am stating my personal observations. I have no other agenda, but to see the exchange regained its former glory. As usual, no malice intended. I pray for wisdom. God bless 🙏

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