- The city-state's economy may be larger than Hong Kong's, but the total value of companies listed on the Singapore Stock Exchange is about seven times smaller.
- Analysts who spoke to CNBC say possible solutions include engaging investors more and seeking to "value" programs implemented in Japan and South Korea.
For years, Singapore regulators have been trying to increase the attractiveness of its stock exchange.
The city-state's economy may be larger than Hong Kong's, but the total value of companies listed on the Singapore Stock Exchange is about seven times smaller.
The total quoted value of the stock market in the SGX in May it was 798.55 billion Singapore dollars ($590.47 billion).
Meanwhile, the Hong Kong Stock Exchange It had a market capitalization of HK$32.9 trillion ($4.21 trillion) at the end of May.
Analysts who spoke to CNBC say possible solutions include engaging more with investors and looking to "value" programs like those in Japan and South Korea.
Liquidity in Singapore
The Singapore stock market may have previously been described as "bored" and "bored" - but in reality, the overall performance of the SGX Strait Time Index is stronger than the Hong Kong benchmark index Hang Seng Index.
The STI has seen annual gains every year since 2021, except for 2023, when the stock market fell 0.34%. By contrast, the HSI posted four consecutive years of losses, including declines of more than 10% annually between 2021 and 2023.
However, the Singapore Stock Exchange has been affected by low trading volumes and more deletions than listings.
Rotation speed on the SGX, a measure of market liquidity, stood at 36% for all of 2023.
In comparison, data from the World Federation of Exchanges showed that the Hong Kong Stock Exchange recorded a turnover speed of 57.35% in the same period and 103.6% on the Japan Stock Exchange, an indication that Japan recorded total transactions that exceeded its total market capitalization. .
Lessons for Singapore
1. Valuation programs
In a May 8 note, financial services provider CGS International suggested that one way to boost Singapore's stock market could be to consider "valuation programs" in other major markets in Asia, such as Japan and South Korea.
Market regulators in Japan and South Korea have reorganized their markets, enacted new regulations and implemented programs to increase the value of their listed shares.
While South Korea has yet to report any results from those efforts, CGS International noted some promising results from Japan.
At the end of September 2022, 50% of shares listed on Japan's Prime market were trading below their book value, a sign that investors may think the company is not worth what it is on paper.
Since reforms began in 2023, this proportion has improved to 36% as of April 15.
In Singapore, Maybank Investment Banking Group estimates that 67% of SGX shares are trading below book value, although CGS International noted that stocks such as real estate investment trusts are trading below book value due to the high rate environment of interest.
"We note that in the case of Japan and Korea, the determination to improve the state of the stock market is supported by high-level management of the exchanges and the participation of academia, market participants and relevant government bodies," said CGS analysts.
He The Financial Times reported in May that the SGX is reviewing proposals of the Singapore Private Equity and Venture Association to enhance its attractiveness.
Citing people familiar with the matter, the Financial Times report said government agencies such as the Monetary Authority of Singapore, the Economic Development Board and the Ministry of Trade and Industry were involved in those discussions.
The MAS told CNBC that it "has received the proposals and is reviewing them," while the EDB declined to comment. MTI has yet to respond to CNBC's request for comment.
2. Investor commitment
Analysts at Maybank and CGS International also noted that Singapore companies need to boost investor participation, which could revive interest in the market.
CGS said companies should consider making investor relations activities, such as IR meetings, investor roadshows and analyst coverage, a key performance indicator, and said IR events can spark interest in smaller companies.
Thilan Wickramasinghe, head of research for Singapore at Maybank Investment Banking Group, highlighted that years of industry consolidation have resulted in huge underinvestment in equity research.
As such, more research has focused on liquid and large-cap stocks at the expense of smaller stocks. โIf small and mid-cap stocks do not get enough attention from investors, they will suffer from lower valuations and liquidity,โ Wickramasinghe said.
This creates a negative feedback loop in which illiquid stocks become unattractive for research coverage, leading to increasingly lower valuations and liquidity.
He said that "increasing engagement with investors and providing better guidance to the street are good things that can generate value."
On the exchange's side, some possible measures include incentives such as tax benefits and adjusted listing fees for companies that improve their valuation, CGS said.
3. Restructuring
Still, "there is no single magic solution," said Wickramasinghe, who said the solutions for Japan and South Korea do not necessarily work for Singapore.
For example, Japan and South Korea are trying to increase dividend payments, but Singapore is already a key dividend-driven market in the region and this segment of yield investors is already well served, he notes.
For him, companies should continue investing in rationalizing their capital structures and focusing on generating higher returns, something that markets tend to reward.
Wickramasinghe referred to companies listed in Singapore, such as Sembcorp Industries and Keppel Corpthat have restructured their capital structures in recent years and have "massively" outperformed the market.
Calls to reactivate actions
To be sure, calls to revive Singapore's stock market are not new.
In 2015, a group of remisiers in Singapore signed an appeal letter to the government seeking urgent measures to restore confidence in Singapore's actions.
In February of this year, the Society of Remissioners He again urged financial authorities to do more to revive interest in the Singapore stock market.
The Singapore Parliament debated the issue with Finance Minister Lawrence Wong highlighting that "conditions remain difficult for the Singapore stock market" adding that due to "higher for longer" interest rates, High-growth companies are choosing to remain private, and those that are publicly traded prefer the markets. like the united states
Wong, who is now also prime minister, said that while the government will continue to encourage Singapore-incubated companies to list in Singapore, "the final listing decision will be made by the companies".
