Q: Why is liquidity and valuation better in Hongkong, Australia and the US?
A: What happens when you compare apples, oranges and pears?
The phrase “Lies, damned lies and statistics” has often been wrongly attributed to Mark Twain and a source of meme on the Internet. Irrespective of its orignation, the phrase describes the persuasive power of numbers, particularly the use of statistics to bolster weak arguments.
Consider this article “The best performance at the Olympics by Singaporean athletes since 2016” in The Sunday Times recently, which celebrated our Paralympians’ success in Tokyo. Without taking anything away from the tremendous results produced by our inspirational champions, isn’t this the only Olympics since 2016? Factually correct, it is probably an appropriate hyperbole, considering our poor Olympians who were roundly castigated unfairly by many.
At the end of August, the Straits Times Index (STI) closed at 3,055 points — less than 5% off the 3,200-point level seen in March and April. To mark this hiatus of the stellar post-Covid run, some reports used the hyperbolic “lowest since March”.
But why use March as a base for comparison? If we use a one-year lookback, 3,055 points was 20% higher versus August 2020.
So, which is more appropriate? Why not go all the way back to March 2009, the nadir of the Global Financial Crisis when the STI was barely 1,500 points? Or why not the intra-day record of 3,906.1 points back in Oct 10, 2007?
Hey wait, why wasn’t there a comparison with the Hang Seng China Tech Index or the Hang Seng Index (HSI)? At the end of August, both these two indices were down 29.5% and 13.4% from their highest in March respectively.
Our experts had editorials comparing Singapore to the US (currently the best performing capital market in the world) and where opportune, Hong Kong, China and even Australia will be bandied out.
At this point, I will be accused of “cherry-picking” and I stand guilty as charged. But that’s the point I am trying to make. You can always find a statistic to do a comparison to support one’s narrative.
For example, you can compare Apple Inc with a $3.44 trillion market cap with a $100 million Singapore stock and bemoan the differences in liquidity between the former and the latter. Yes, this is factually right but is this an apple versus apple comparison? Are we again talking ourselves deep into the abyss? (See “Investing Culture: A tale of two cities”, The Edge Singapore, Issue 1001, Sept 13).
Is the grass always greener?
As the US market powers ahead this year, fuelled in part by what The Financial Times called a SPAC bubble late last year, it has become a bit of a nerdy market’s joke that the Wilshire 5000 stock index in the US has only slightly less than 3,500 stocks. There are not enough stocks to make up that index as the number of listed companies in the US are half where they were in the year 2000.
There are trends underpinning this surprising statistic — especially for readers of local media overdose on the parade of delisting headlines. The rise of private equity, consolidation, M&A and indexation is driving a winner-takes-all corporate mentality, with mega-trillion companies emerging. The cost of governance is also not trivial with Sarbanes Oxley compliance. Singaporean companies harbouring such aspirations of a US listing need to consider the highly litigious environment. For example, you may have to pay US$3 million ($4.2 million) with US$5 million excess for a US$10 million cover from being sued by class actions as a CEO of a US-listed company.
While a US$5–10 billion Singapore stock could be included in the STI with a guaranteed institutional following, this same company will merely be a small cap in the US given its huge depth and breadth.
Worse, there are those from Asia who have explored the wild west in the sub-$1–3 billion category either by direct listings or even through the popular de-spac route but ended up being “delisted”.
Consider the case of MOL Global, once touted as one of South-east Asia’s biggest payment companies. It was listed on the Nasdaq in 2014 at US$1 billion. After it failed to meet the minimum bid price, the company did not apply for an extension to regain compliance. It was therefore delisted in less than two years.
In 2018, MOL was sold to gaming peripherals maker Razer Inc for just US$100 million and MOL’s virtual credits were combined into Razer’s own consumer e-wallet offerings.
In August, Razer announced it was shutting down this business to focus on the B2B FinTech offerings. Around the time, it announced 1HFY2021 ended June earnings of US$34 million versus US$17.3 million in the red same time last year. When it raised US$528 million in its highly successful 2017 listing, the shares were offered at HK$3.88 each. It was then loss-making. Despite the recent earnings, Razer shares are now trading at less than half the IPO price.
Still the search for a foreign El-Dorado continues. In 2019, PropertyGuru attempted a listing in the domestic-focused capital market of Australia, only to pull the IPO at the 11th hour. It is now looking at a SPAC in the US, potentially a US$1.78 billion transaction, along with a host of other Asean-based companies all seeking to emulate the success of Sea, which listed at a respectable US$5 billion but has grown to become the largest stock in MSCI Singapore with a market value of around US$175 billion.
While we propagate stories about successful companies listing in distant shores, some after delisting from Singapore, we seldom look at the results. Aslan Pharmaceuticals capitalised on Taiwan’s hot market for biotech in 2017 and then added an American Depositary Receipt offering in 2018 in the US. It has been a tough journey even though it is now embedded in the largest market for biotech companies.
Likewise, in January, Tat Hong Equipment Service, the China arm of crane supplier Tat Hong Holdings, previously listed on the Singapore Exchange (SGX), was listed in Hong Kong at HK$1.73 (30 cents). It closed at HK$1.47 on Sept 10, with anaemic volume.
If Singapore markets cannot support digital and tech, how is it that iFast Corp trades at around 100 times earnings? Does a sector price earnings ratio for healthcare on the SGX of 72 times look like low valuation? Why do experts and commentators miss this beat?
Bankers, promoters and money talks
A few years back, an angry rabble of remisiers levelled a litany of woes at the SGX, including the lack of “quality” IPOs and low liquidity, which all of us are part of the solution as well. But mostly, they were upset with the removal of the stock market lunch break.
Together with pundits from all sides of the fence who often contradicted one another based on what the source of the malaise was, academics focusing on governance failures of the past and bemoaning that our market did not have the Alibaba-type stocks with great liquidity, they say it must be because costs are too high, rules too strict (although some say they are not tough enough) that companies were delisting and relisting elsewhere.
While Australia’s listing regime is somewhat different and hence professional fees are one-third lower, it may be interesting to note that cost of fundraising — what promoters and bankers make — are between two and three times that of Singapore’s. But these pots of gold, which can be realised only if one is successful, come at a price.
Is it any wonder that global investment banks — especially those in the US — had a great business of bringing Chinese tech companies to the US although the deal flow is temporarily on hold as the impact of Didi Global’s listing forces some regulatory reviews.
If the China pipeline is drying up, then South-east Asia becomes the next mining town to sell to US investors. Promising lofty valuations at IPO and deep fundraising, what is guaranteed are higher fees for fundraising — neither post-IPO performance nor post-listing coverage — and the risk of being lost as a micro-cap (billion-dollar company notwithstanding) in that ocean.
More recently, the “Fragrant Harbour” route north has also dissipated somewhat for many SMEs as regulators tightened up the rules on reverse takeover offers and transfers from Hong Kong’s GEM to the Mainboard resulting in prices of listing shells in Hong Kong falling from peaks two years ago. The prospect of one more flip to a China company, following a successful listing in Hong Kong and the gravy train of consultants, professionals who milk it, augmented these narratives that were often not based on fact. A review of post-IPO performance of the Singapore companies who have listed in Hong Kong will be illuminating.
Interestingly, the decline in retail participation in the Singapore market cited by the brokers (until more recently reversed with the Covid boost and greater competition and adoption of online platforms), corresponds with the emergence of Singapore as a private banking and wealth management hub.
True, there is a need to diversify but as consumer wealth shifts to private banks, higher margin products are often touted at the expense of Singapore stocks. Seriously, the whole world is already giving Elon Musk capital, what say you spare some change for our local heroes?
Liquidity is technically total turnover divided by market cap. Sometimes perfectionists adjust for free float. A $50 million market cap Catalist company in an industrial sector with 90% held by substantial shareholders being compared to Tencent Holdings, makes no sense as a comparative tale of how Hong Kong is better valuation and more liquid.
Instead, why don’t we compare DBS Group Holdings with a GEM stock in Hong Kong? It may be a surprise to many that STI constituent stocks as an average have better liquidity (adjusted for free float) than HSI index stocks and often command better valuation as a whole. Even China-focused stocks like Kong Kong-listed Fosun International, with a market cap of HK$84 billion that could be a top 20 stock in Singapore, trades at just seven times earnings.
Sure, it is natural for many to be critical. Yes, it is great to have aspirations. That is why I am not saying Singapore should look for the lowest common denominator.
Indeed, the market here has already transcended on many counts. Stock market capitalisation ratio to GDP is right up there. The proportion of international market capitalisation at more than 40% compares with global markets like US and London with less than 15%, or a mere 5% for Hongkong and Australia.
We have the only international REITs market compared to domestic J REITs, A REITs and US REITs. And we have great companies looking for capital to propel their growth and create jobs in Singapore.
Can we as a market recognise the relative strengths and use our absolute wealth firepower to support more companies like Nanofilm Technologies International, instead of hoarding coupon-clipping dividend stocks?
With the incentives provided by the Singapore Economic Development Board and MAS for high networth individuals, family offices and fund managers adding to the $4 trillion under management in Singapore, could not a portion of that be specifically channelled locally to ensure that as a financial centre, we can have the more vibrant capital market that we crave for together.
Chew Sutat, retired from SGX in July 21 as senior managing director and member of SGX’s executive management team for 14 years. He serves on the board of ADDX & chairs its listing committee. Chew was recently awarded FOW Asia Capital Markets Lifetime Achievement Award
Photo of Nanofilm: Albert Chua/The Edge Singapore