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The Singapore Stock Exchange – Is Something Wrong?

DollarsAndSense takes a look at what’s been happening to the Singapore Exchange and why it seems to be lagging recently.

 

Singapore has long been touted as the financial hub of Asia, a global city and a successful nation. While we have gained relative recognition in this aspect as a country with a strong stock exchange, we are still far from being the global leader.

The fact of the matter is that Singapore is still really too small a market to be the global leader. And with this really small market, we continue to lose out in terms of liquidity to larger markets. For example, the Shanghai Stock Exchange (SSE) has already seen 35 Initial Public Offerings (IPOs) this year, raising over US$5.4 billion from its market. Daily trading volume usually exceeds US$100 billion. In comparison, the Singapore Stock Exchange (SGX) has only seen three IPOs this year, and has a daily turnover that is sometimes less than US$1 billion.

It’s not only the numbers that tell a tale of a flagging exchange. The quality of companies listed on the SGX is also lagging, with recent IPO companies experiencing volatile share prices. The truth is, SGX has not seen a high quality foreign blue chip company choosing it as the stock exchange to be listed in for some time.

Shanghai and Hong Kong

This has only been further exasperated by the fact that the Shanghai Stock Exchange has merged with the Hong Kong Stock Exchange. This merger allows companies to be exposed to a huge market through China and yet remain global via the Hong Kong presence. It also reduces SGX’s efforts to woo the Chinese market and to expand into China close to naught.

The only silver lining here is that currently, only Chinese companies are likely to benefit from this merger, but if SGX does not improve, it will be swiftly surpassed even in other areas, if it hasn’t already been.

Non Merger With Australia Exchange

Another drawback that SGX faced was the breakdown in its takeover initiative for the Australian Exchange in 2011. While this would have given SGX greater exposure, it probably would not be enough to compete with the newly merged Shanghai-Hong Kong partnership.

Penny Rout

The recent penny stock rout, which saw $6.9 billion erased in just three days in October 2013, crippled the market and further decline the reputation of the SGX. Subsequently, SGX tried to reinforce tougher rules to regulate the market, such as introducing the Minimum Trading Price of 20 Singapore cents for Mainboard-listed stocks. Only time will tell if these measures become effective.

 Quis Custodiet Ipsos Custodes

Someone needs to guard the guards. Last week, the Monetary Authority of Singapore (MAS) stepped in to issue a caution for trading SGX stocks after some volatility in its share price. This, on the back of a reprimand for two trading disruptions last year, shows that someone has to guard the guards. MAS has come forward to shoulder on this responsibility.

The Rocking Road Ahead

A new CEO, Mr Low Boon Chye, will come into the hot seat on 14 July 2015. The veteran banker will have a tough time ahead of him to steady the ship. We believe there is much scope for the market to recover. Perhaps a shift in focus, or a bright new spark, could be the impetus for the next stage of growth.

One such area for a bright new spark is to position the SGX as a market for ASEAN businesses, and for regional and international funds to get into ASEAN businesses. By building on this niche, maybe the SGX will be able to spur another wave of growth.

 

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