SMALL-CAP STRENGTH
The three main banks in Singapore – DBS, OCBC, and UOB – dominate the market, accounting for about 25 per cent of day by day buying and selling quantity. Their robust efficiency has led to a major improve of their mixed weighting within the Straits Occasions Index (STI), from 40 per cent in 2019 to 54 per cent at present.
Nonetheless, over 80 per cent of the listed corporations on the SGX have a market capitalisation of below US$1 billion, positioning the alternate as a small-cap market. This phase, notably small and mid-cap shares, stays undervalued regardless of being well-run, worthwhile, and providing enticing dividends. Revitalising this market phase might convey much-needed liquidity and power to the SGX.
Fairly than forcing fund managers to spend money on particular person shares, a simpler technique could possibly be to create indices and exchange-traded funds (ETFs) based mostly on small and mid-cap corporations – maybe an SGX50, SGX100, and SGX200.
These funds would make it simpler for institutional traders, together with household places of work, to realize publicity to small- and mid-caps, thus enhancing liquidity. Such a transfer might considerably alter the buying and selling dynamics of the native market by bringing institutional cash into beforehand uncared for segments.
Whereas the EMRG’s S$5 billion initiative seems to be a step in the fitting route, some trade observers argue that extra could possibly be accomplished to help the SGX. For instance, it’s value contemplating if government-backed funds just like the Authorities of Singapore Funding Company (GIC) ought to spend money on SGX-listed shares.
If the SGX succeeds in attracting regional corporations to listing right here, it makes little sense if the GIC doesn’t spend money on them, notably when it does so on different exchanges like Hong Kong. Such an strategy might additional improve the attraction of the SGX as an inventory vacation spot.
The difficulty of delisting, which has been a rising concern with about 20 corporations delisting final yr and 5 to date this yr, may additionally be alleviated if the S$5 billion programme injects adequate liquidity into the market. As well as, the tax incentives already introduced will function a horny catalyst for corporations to contemplate the Singapore marketplace for their IPOs.
Nonetheless, there may be room for additional enchancment. One potential space is investor training. Retail traders, notably the youthful demographic, are inclined to gravitate in the direction of abroad markets and extra unstable property like cryptocurrencies. On condition that the present SGX retail base is essentially aged 55 and above, efforts to interact youthful traders might assist diversify the investor base and encourage extra participation within the native market.
Analyst protection of mid- and small-cap shares is also enhanced. Analysts must be inspired to determine and promote undervalued shares with development potential, quite than focusing totally on large-cap corporations. Brokers, too, must be extra prepared to interact with shoppers and promote development and worth shares, aligning with traders’ threat appetites.
Lastly, attracting massive, well-known corporations to listing on the SGX, akin to PSA, Changi Airport, and NTUC, might function a strong sign of the alternate’s competitiveness. Waiving or lowering some transaction charges and taxes might additional cut back prices and make the SGX probably the most enticing buying and selling platforms in Asia.
