SMALL-CAP STRENGTH
The three main banks in Singapore – DBS, OCBC, and UOB – dominate the market, accounting for about 25 per cent of each day buying and selling quantity. Their sturdy efficiency has led to a big improve of their mixed weighting within the Straits Occasions Index (STI), from 40 per cent in 2019 to 54 per cent as we speak.
Nevertheless, over 80 per cent of the listed firms on the SGX have a market capitalisation of below US$1 billion, positioning the alternate as a small-cap market. This phase, significantly small and mid-cap shares, stays undervalued regardless of being well-run, worthwhile, and providing enticing dividends. Revitalising this market phase may carry much-needed liquidity and power to the SGX.
Somewhat than forcing fund managers to put money into particular person shares, a simpler technique could possibly be to create indices and exchange-traded funds (ETFs) primarily based on small and mid-cap firms – maybe an SGX50, SGX100, and SGX200.
These funds would make it simpler for institutional traders, together with household places of work, to achieve publicity to small- and mid-caps, thus enhancing liquidity. Such a transfer may 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 best path, some business observers argue that extra could possibly be performed 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 put money into SGX-listed shares.
If the SGX succeeds in attracting regional firms to listing right here, it makes little sense if the GIC doesn’t put money into them, significantly when it does so on different exchanges like Hong Kong. Such an strategy may additional improve the attraction of the SGX as a list vacation spot.
The problem of delisting, which has been a rising concern with about 20 firms delisting final yr and 5 to this point this yr, can also be alleviated if the S$5 billion programme injects ample liquidity into the market. As well as, the tax incentives already introduced will function a beautiful catalyst for firms to think about the Singapore marketplace for their IPOs.
Nevertheless, there’s room for additional enchancment. One potential space is investor training. Retail traders, significantly the youthful demographic, are inclined to gravitate in direction of abroad markets and extra unstable property like cryptocurrencies. Provided that the present SGX retail base is basically aged 55 and above, efforts to have interaction youthful traders may assist diversify the investor base and encourage extra participation within the native market.
Analyst protection of mid- and small-cap shares may be enhanced. Analysts must be inspired to determine and promote undervalued shares with progress potential, relatively than focusing totally on large-cap firms. Brokers, too, must be extra keen to have interaction with purchasers and promote progress and worth shares, aligning with traders’ danger appetites.
Lastly, attracting massive, well-known firms to listing on the SGX, equivalent to PSA, Changi Airport, and NTUC, may function a strong sign of the alternate’s competitiveness. Waiving or lowering some transaction charges and taxes may additional scale back prices and make the SGX one of the vital enticing buying and selling platforms in Asia.
