Singapore wants to revive its stock market. Could major Asian markets have the answers?

For years, Singapore’s regulators have been trying to boost the attractiveness of its stock exchange. The city-state’s economy may be larger than Hong Kong’s, but the total value of listed companies on the Singapore Exchange is about 7 times smaller. The total listed value of the securities market on the SGX in May was $798.55 billion Singapore dollars ($590.47 billion). Meanwhile, the Hong Kong Exchange had a market capitalization of $32.9 trillion Hong Kong dollars ($4.21 trillion) at the end of May. Analysts who spoke to CNBC say that possible solutions include engaging more with investors, and looking to “value up” programs such as those in Japan and South Korea.

Liquidity in Singapore

Singapore’s stock market may have been previously described as “boring” and “unexciting” — but in reality, the overall performance of the SGX’s Straits Times Index is stronger than Hong Kong’s benchmark Hang Seng Index. The STI has seen yearly gains every year since 2021, except in 2023 when the stock market fell 0.34%. In contrast, the HSI recorded four consecutive years of losses, including declines of more than 10% a year between 2021 and 2023. However, the Singapore bourse has been plagued by thin trading volumes and more delistings than listings. Turnover velocity at the SGX, a measure of market liquidity, stood at 36% for the whole of 2023. In comparison, data from the World Federation of Exchanges showed that the Hong Kong Stock Exchange recorded a turnover velocity of 57.35% in the same period, and 103.6% at the Japan Exchange — an indication that Japan saw total trades that exceeded its total market cap.

Lessons for Singapore

1. Value up programs In a note on May 8, financial services provider CGS International suggested that one way to boost Singapore’s stock market may be to consider “value up 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 boost the value of their listed stocks. While South Korea has yet to report any results from those efforts, CGS International noted some promising results from Japan. As of end September 2022, 50% of the stocks listed on Japan’s Prime market traded below book value, a sign investors may think the company is not worth what it is on paper. Since the reforms started in 2023, this ratio has improved to 36% as at April 15. In Singapore, Maybank Investment Banking Group estimates that 67% of SGX stocks were trading below book value, although CGS International pointed out stocks like real estate investment trusts are trading below book value due to the high interest rate environment. “We note that in Japan and Korea’s case, the determination to improve the state of the stock market is backed by high level management from the exchanges and the involvement of academia, market participants and the relevant government bodies,” the CGS analysts said. The Financial Times reported in May that the SGX is reviewing proposals from the Singapore Venture & Private Capital Association to improve its attractiveness. Citing people familiar with the matter, the FT report said government agencies such as the Monetary Authority of Singapore, the Economic Development Board, and the Ministry of Trade and Industry were engaged in those discussions. The MAS told CNBC it “has received the proposals and is reviewing them,” while the EDB declined comment. MTI has yet to respond to CNBC’s request for comment. 2. Investor engagement Analysts from Maybank and the CGS International also pointed out that Singapore companies need to boost investor engagement, 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, saying that IR events can trigger 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 massive under-investment in equity research. As such, more research has focused on large cap, liquid stocks at the expense of smaller stocks. “Without small-midcap stocks gaining sufficient investor attention, they suffer from lower valuations and liquidity,” Wickramasinghe said. This creates a negative feedback loop where illiquid stocks become unappealing for research coverage, leading to ever lower valuations and liquidity. He said “increasing engagement with investors and providing better guidance to the Street are good things that can drive value.” On the part of the exchange, 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 bullet solution,” noted Wickramasinghe, who said the solutions for Japan and South Korea may not necessarily work for Singapore. For example, Japan and South Korea are seeking to increase dividend payouts, but Singapore is already a key dividend-led market in the region and this segment of yield investors is already well catered for, he points out. To him, companies should continue to invest in streamlining their capital structures and focus on driving higher returns, which markets tend to reward. Wickramasinghe pointed to Singapore-listed companies such as Sembcorp Industries and Keppel Corp, that have restructured their capital structures over the past few years and outperformed the market “massively.”

Calls to revive stocks

To be sure, calls to revive the Singapore stock market are not new. In 2015, a group of remisiers in Singapore signed a letter of appeal to the government seeking urgent measures to restore confidence in Singapore stocks. In February this year, the Society of Remisiers again urged financial authorities to do more to revive interest in the Singapore stock market. Singapore’s Parliament debated the issue, and Finance Minister Lawrence Wong highlighted that “conditions remain challenging for the Singapore equities market” adding that due to “higher for longer” interest rates, strong growth companies are choosing to remain private, and those that list prefer markets like the U.S. Wong, who is now also the 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.”