Singapore tries to boost capital market

FOR some time now, Singapore has been trying to address the one chink in its financial hub armour – the poor interest and weak liquidity in the Singapore Exchange (SGX) which had led to paltry valuations of stocks listed there.

There have been more delistings than initial public offerings on the SGX in recent years.

Incidentally, Malaysia’s problem is the converse, as trapped liquidity here has led to the overvaluation of many stocks on Bursa Malaysia.

In its latest budget announcement, the Singapore government says it will pump in S$5bil to portfolio fund managers there to specifically invest in stocks on SGX.

This could have some impact, if executed well.

It does seem as if Singapore is taking a leaf from Malaysia – we are world-renowned for getting our government-linked investment companies (GLICs) to pump most of their money, directly and through outsourced fund managers, into our own stock market.

But will S$5bil suffice?

The amount is not large at just 0.8% of the entire market capitalisation of SGX listed companies of S$617bil.

But it is a substantial 8% of the total market capitalisation of small to mid-cap stocks, notes Paul Chew, head of research, Phillip Securities, in a report.

But S$5bil or RM16.5bil is paltry compared with the RM190bil outsourced to external fund managers as at Dec 31, 2023, by the Employees Provident Fund alone.

And there are other GLICs doing it too, hence the sort of trapped liquidity in our market versus the dearth of investment in SGX stocks.

No wonder company owners, including UMS Integration Ltd which is a semiconductor component maker listed on SGX and which trades at only 15 times earnings, are looking for a dual listing on Bursa.

Its automated test equipment peers on Bursa such as Greatech Technology Bhd, Vitrox Corp Bhd and Pentamaster Corp Bhd are trading at PE multiples of 29, 74 and 33 times, respectively.

Another challenge for the S$5bil being outsourced to fund managers is the criteria imposed.

If the fund managers use it just to buy blue chips listed on the SGX, then it may hardly move the needle.

Meanwhile, the discrepancy between the valuations of Bursa and SGX listed stocks is a long-standing enigma of this region.

Indonesian-based plantation companies, with their headquarters in Singapore, trade at discounts to pure play Malaysian planters.

Real estate investment trusts (REITs), one of the most attractive investment products on SGX due their asset quality, yield offerings and Singapore dollar hedging, still trade at a slight discount to smaller pure play Malaysian REITs.

SGX’s moves though are more to help it compete against the seemingly more vibrant Hong Kong Stock Exchange.

Singapore already has benefited from drawing a lot of funds from Hong Kong and China to set up family offices.

Speaking of family offices, the Singapore government is also making single-family offices intending to open in the city-state to invest S$50mil in local assets that include SGX-listed stocks.

There are also plans to provide tax incentives to those investing in SGX stocks; corporate tax rebates for new and secondary listings; boosting research of listed companies; and streamlining the listing process to make it faster and more efficient.

All that is well and good but it will not detract from the one thing that will draw in more investors – the paltry price earnings ratios of SGX-listed stocks.

Until that sees a significant change, the SGX will remain in the doldrums it is in today.

As Philips Securities Chew wrote this week: “The global trend of passive investing and algo trading is impacting global equities. The largest and most overvalued companies attract the most capital.”