A new stock exchange, local investments by family offices among wish list to revive Singapore bourse

FORMING a new stock exchange, encouraging family offices to invest locally and creating an ombudsman to protect investors – these were some of the suggestions put forth by players in Singapore’s equity market on how to revive the flailing local bourse.

Their proposals come as the Monetary Authority of Singapore recently announced that it was setting up a review group to strengthen the equity market here. Chaired by Second Minister for Finance Chee Hong Tat, the group is expected to complete its report within a year.

The Business Times spoke to eight people representing various stakeholders in the capital market, such as listed companies, investors and fund managers, for a wish list of changes they wanted to see.

There was consensus across the board that “bold” measures across the entire public equity system are needed.

These changes would have to address demand-side issues, such as deepening market liquidity, as well as supply-side issues, such as improving the range and quality of listings.

“If we do not do anything about (the public equity market), we will find it hard to emerge from this downward spiral of poor liquidity, low valuations, dearth of high-quality listings, rising delistings, declining investor interest and market participation,” said Arthur Lang, the group chief financial officer of local telco Singtel.

A separate stock exchange from the mainboard and Catalist

For Lim Kuo-Yi, the co-founder and managing partner of venture capital firm Monk’s Hill Ventures, a fresh local exchange could be one way to kick-start the equity market here.

“One should contemplate that maybe having a separate exchange, with a very distinct mission, vision and characteristic, might be necessary,” said Lim.

He suggested that this new exchange could represent South-east Asian companies across various sectors such as tech, electric mobility, semiconductors or garment manufacturing.

Establishing a clear identity for the exchange will then allow regulators to find the relevant companies and set listing standards accordingly, he added.

Having an effective stock exchange is crucial for venture capitalists, especially for those with investments in the region, as it would allow them to see real returns. This will prove “conclusively” that it is worth backing risk-taking entrepreneurs in the region, said Lim.

Tapping new pools of investors

Several players reiterated their calls for institutional investors – particularly that of sovereign wealth funds GIC and Temasek – to invest in the Singapore Exchange (SGX). This would help to boost liquidity and investor confidence, they said.

Family offices can also be encouraged to invest some of their funds in SGX, said Singtel’s Lang, as they represent a significant portion of Singapore’s S$5.4 trillion assets under management (AUM) at the end of 2023.

Currently, family offices can qualify for tax incentives by investing either S$10 million or 10 per cent of their AUM – whichever is lower – into investments including stocks and direct investments into companies.

Lang suggested that this requirement be tweaked such that family offices have to allocate half of the required sum into locally listed stocks. Doing so would “meaningfully and materially” direct capital into public equities, said Lang.

However, Joe Lin, the executive director of investments at family office Golden Equator Wealth, disagreed that private capital owners should be required to participate in the stock market. Doing so would not address the “core issue” of attracting quality companies to list on the SGX, he said.

Instead, Lin felt that “ingrained issues” in the market, such as low trading volumes and concerns over corporate governance, should be resolved. Doing so would more effectively increase engagement in the market, he added.

Lin said that family offices in Singapore prefer to invest in diverse markets. They also consider other factors such as the liquidity and growth potential of markets, as well as the transparency of the regulatory environment.

However, the Singapore equity market’s limited size, sector concentration, relatively lower growth opportunities and lesser global exposure, as well as past governance woes often do not align with their objectives and considerations, said Lin.

Rebuilding an investing culture

Market players also noted that local retail investors were fearful of investing locally due to past scandals such as the collapse of Chinese companies listed on SGX – also known as S-chips – around 2008.

To encourage a culture of investing, veteran investor Jim Rogers said that there should be incentives for Singaporeans to invest directly in the market. An unconventional approach would be to give Singaporeans the option of buying stocks for the same amount in lieu of paying their tax bill.

Most people would prefer to buy shares, which offer the potential for returns, rather than pay taxes, argued Rogers, who is based in Singapore.

“And when people start buying shares, share (prices) go up,” he added.

David Gerald, chief executive of the Securities Investors Association (Singapore), or Sias, also hopes for better support from the authorities for financial literacy initiatives by independent bodies such as Sias. Gerald is of the view that better education among new investors, in particular, would help them overcome their fear of investing locally. 

Stronger investor protection

Meanwhile, the old arguments of whether the SGX should combine both roles of market development and regulatory functions are also being debated.

S Nallakaruppan, president of The Society of Remisiers (Singapore) and Havard Chi, head of investments at fund manager Quarz Capital, called for setting up a regulatory body that was separate from SGX to make clearer the distinction between regulation and market development.

Nallakaruppan felt that a regulatory body to protect investors should be independent. He also noted that Sias, which represents minority shareholders, lacks regulatory powers.

He called for an ombudsman office, possibly a government body, which could independently investigate fraudulent companies and take legal action against them.

Having Singapore Exchange Regulation as a separate, independent entity could potentially improve the rights of investors while limiting the powers of shareholder groups and sponsors, added Chi.

He pointed to other countries, such as Australia and the US, where independent government agencies regulate the respective countries’ local exchanges and are known for being tough on issuers who do not abide by the rules.

Encouraging listings

Poor trading valuations are “the single biggest problem” on SGX, said Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation. Therefore, good companies choose to list on another exchange for better valuations while existing listings on SGX go private if they feel that they are not getting the valuations they deserve.

“As a law firm, we handle many potential initial public offerings (IPOs) that tend to falter at the last minute because market conditions are not favourable or the valuation the underwriters give them is not high enough,” said Thio.

Thio suggested that sovereign wealth funds mandate their portfolio companies which are seeking IPOs to apply for either a primary or secondary listing in Singapore.

A market in sync

Market participants agreed that changes across the entire ecosystem of the public equity market would have to take place in tandem with each other before any change could be seen.

They also suggested that the authorities take the lead to ensure that changes across the ecosystem occur at the same time, with several suggesting that MAS blaze a trail.

“If you bring equity, you bring liquidity but no companies are ready (to list), you will lose momentum,” said Monk’s Hill Ventures’ Lim.

Hence, “we have to simultaneously catalyse both demand and supply”, said Singtel’s Lang.