A report released by Bloomberg on February 13 showed a shrinking capital market in the Singapore Exchange (SGX). “The decline over recent years has been clear and pronounced,” the study stated. This decline was due to a number of companies dropping out of the listing, while others merged with bigger corporations or went private.
In 2016, the SGX lost an estimated S$15.5 billion due to 27 privatisations. The following year, more companies delisted and confirmed acquisition offers. On the other hand, only four Initial Public Offerings (IPOs) were listed during the first half of 2017. Come 2018, when the total market capitalisation of companies with primary listings had fallen by S$97.5 billion since 2014. The last five years has experienced more delistings than listings in the market with 741 companies at the end of 2018 compared to a peak of 782 in 2010.
Robson Lee, an expert capital-markets lawyer in Singapore who used to help more than 30 companies list in SGX, saw the decline and changed careers in time. His observations state that a global financial crisis does not cause a regression but more of a shift in the capital market. “If you think about the centre of gravity in Asia and where it’s going, it’s all shifting to mainland China,” noted James Thom, an Asian equities fund manager at Aberdeen Standard Investments Ltd. in Singapore.
As Singapore, with its smaller pool of domestic companies and lack of “greener pastures” to explore, slows down, Hong Kong is cementing its position as the prime choice to list in for Chinese companies. An example provided by the study was gaming company Razer Inc, which is one of Singapore’s few successful consumer-technology start-ups. It is led by Singaporean CEO Tan Min Liang and funded by GIC Pte. The company listed in November 2017 but avoid SGX altogether and went for HKEX. In 2018, HKEK raised S$45.4 billion ($33.5 billion) in IPOs as mega-corporations such as China Tower Corp., Xiaomi Corp., and Meituan Dianping listed in Hong Kong, pushing this exchange to the top spot for the year.
Tham Tuck Seng, PricewaterhouseCoopers (PwC)’s head of capital markets in Singapore, says that “Hong Kong’s market is now so much larger and more vibrant than Singapore’s that the two can’t even be compared.” And it is not just Hong Kong that Singapore has to watch out for. Last year, the Ho Chi Minh Stock Exchange in Vietnam and Thailand’s bourse raised S$3.9 billion ($2.9 billion) and S$3.5 billion ($2.6 billion) respectively.
Why Hong Kong and not Singapore
A short comparison was provided in the report which listed some of Singapore’s “shortcomings” in light of Hong Kong’s strengths such as the education system and homeownership. Singapore is known for producing high-achieving students through rote learning and strict adherence to rules. This system, however, leads to a lack of entrepreneurs and creative people; some things needed for thinking out of the box in a volatile environment such as the stock market. Another drag pinpointed in the article is the focus Singaporeans have toward homeownership. With over 90 percent of Singaporeans owning their homes compared to Hong Kong’s 50 percent, the latter has more money to liquidate in the stock market.
The study did not forget to highlight the success story of Singapore and its journey to becoming the world’s third-richest country in a single generation. While the fate of the stock market may move past Singapore, this will not leave the country empty-handed. Bloomberg tapped Maybank Kim Eng Research Pte’s senior economist, Chua Hak Bin, and Chew Sutat, head of equities and fixed-income businesses at SGX to enumerate some of the strengths of the country amidst the shrinking capital market. These include:
– an established real estate investment trust market
– notably high valuations for medical-services companies
– a good track record in listing consumer stocks
– the ability to help companies raise funds beyond their initial offerings
The experts also agree that Singapore is still “the market of choice for firms looking to expand regionally and tap international visitors.” Head of investment research at Oversea-Chinese Banking Corp. (OCBC), Carmen Lee, added that “A lot of private bank money is now in Singapore, and they actually like the core, somewhat boring, defensive stocks.”
This “somewhat boring” capital market may be considered as the icing on the cake because it is still a steadily-growing economy that lays a stable foundation for a country.