Q: Can a financial hub exist without a vibrant equity market?
A: Perhaps not, but what defines vibrancy?

Last week, William Bratton, in an opinion piece published in the South China Morning Post, argued that Singapore’s “zombie” stock exchange is undermining its financial hub dream. He claims that the situation is “irreversible, diminishing Singapore’s relevance, leaving it to contend with being a smaller and more specialised financial centre”.

I received a number of shares on WhatsApp, and the emotions tied to those messages varied from “incensed and insulted” (I&I) to “applaud and enthuse” (A&E) — “see I told you so, it’s hopeless” was one example of the latter.

Whilst Bratton makes a good case why a financial hub needs a vibrant equity market (which I agree with), the object of his blame — the Singapore Exchange (SGX) — is a rather curious one. Any exchange, including the Hong Kong Exchanges and Clearing (HKEX), is as strong as the ecosystem around it. 

If indeed the “equities ecosystem is the largest and most critical building block”, and the measure of success is having “deeper and more complex capital market activities”, then replace “SGX” with, say, HSBC (where Bratton was its head of equity research for Asia Pacific), and one could consign a few global universal banks to the same category of specialised niche players. That is, if indeed their part in primary origination or secondary trading activities, or lack thereof, in the Singapore ecosystem actually contributes to the current “stupor”, as described.

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If there is a problem in Singapore — as this column has flagged — it is not for lack of capital here ($4.7 trillion). Some of the problems are not unique. For example, delisting is a global phenomenon. The actors to blame are all who are part of it: our investing culture; our promiscuity or lack of home bias of investors big and small; the rules and alignment of incentives and interests; as well as stakeholders who were too soft in stemming the tide of quitters seduced to list elsewhere — but who did not always succeed.

Equities first?

In truth, equity markets, specifically mega IPOs, are the memorable stories capturing the headlines. After all, the big brand names and the loud personalities involved tend to make for a more interesting read. Not to forget, the resultant public visibility of the companies — be it boom or bust — makes it easier for the sell-side to generate trading interest and make good money.

This ranges from the underwhelming debut of Deliveroo on the London Stock Exchange, a global financial centre, to the WeWork pop in New York — after its severe markdown in the private market on the de-Spac listing. Or for that matter, companies mentioned in Bloomberg's “Hong Kong’s IPO market withers as billion-dollar listings lapse” story published on Oct 17. There is time and place, and not just zombies who are suspended forever, but also vampires who prey on the small-cap enigmas in the volatile markets in North Asia.

In financial markets, transaction volumes, by asset class, are topped by forex, followed by fixed income. Equities, meanwhile, typically have to contend with the third or even fourth place — depending on whether commodities trading volume is included. Even on the latter, equity derivative turnover for hedging, risk management or our punting is a multiple of the actual.

By this measure, the alleged “smaller and more specialised” financial hub of Singapore, somehow, ranks third globally in forex, eclipsing Tokyo and Hong Kong, which are natural bases for JPY and RMB. In addition, SGX has a market share of 85% versus HKEX for RMB futures.

Likewise, bringing Chinese stocks to list in the US (instead of Hong Kong or onshore) had been the bread and butter for US and European investment banks for years — until geopolitics got in the way.

It is somewhat puzzling that after news that Grab, a Southeast Asian success, is doing a potential Spac deal in the US, and that Olam Food Ingredients has chosen London for its primary listing over Singapore (which has to contend with a possible secondary listing), SGX is deemed to be facing an “existential crisis”

Why not mention iron ore derivatives? There’s hardly a heartbeat for such products in Hong Kong, while SGX commandeers a 95% regional market share that puts it in global competition with the CME Group.

And why not mention Chinese equity derivatives? Singapore, as the offshore trading hub of these products, generates trading volume of more than half a million contracts per day. In contrast, the recent launch of MSCI China in its so-called “natural” market like HKEX saw just 1,300 lots changing hands on its debut day. Yet, it was heralded as its best-ever launch of a futures product. Such a level of trading interest would have been seen as a failure on SGX, much like the attempt last year to bring over the 25-year offshore Taiwan futures to Hong Kong. Yet, in an industry first, this MSCI product was eclipsed by a totally new FTSE Taiwan contract, thanks to liquidity rooted in the equity derivatives ecosystem around the SGX.

Catalytic inflection

It may be interesting to note that Singapore does have market leadership in the equity markets. For instance, SGX is the only truly global REIT hub. Hong Kong has introduced very attractive incentives for issuers to list. The Hong Kong government has also actively encouraged North Asian mandates that have chosen a Singapore listing to stay “at home”.

Still, the opportunity costs for issuers may be high. Take for example SF REIT, which made its trading debut in Hong Kong on May 21. It closed the first day down double digits, went as low as HK$3.46 on Oct 13 before recovering slightly to last trade at HK$3.72 on Oct 25. Investors who bought at its IPO price of HK$4.98 are probably not very amused. Interestingly, this issue was co-managed by DBS Group Holdings, the go-to manager for large REIT listings in Singapore. 

Likewise, some of the Southeast Asian unicorns, if large enough, will try for a US listing. However, it may make sense for a possible secondary listing in Singapore so that they can connect to their consumers and investors in this time zone. But such decisions are not only made in their boardrooms; other stakeholders (including regulators) across Jakarta, Kuala Lumpur, Bangkok, Singapore and other capital cities demand their say as well.

In the “September surprise”, Temasek Holdings, EDBI, the Monetary Authority of Singapore and SGX have added their combined weight to catalyse the market. This move came right after SGX announced its Spac listing framework that put in place the infrastructure for a truly pan-Asian offshore jurisdiction for such listings — ahead of Hong Kong. 

Whilst hope may spring eternal, it is up to all of us who have a stake in our home market, which is a financial hub in its own right, to stand up for Singapore; and put our money where our mouth is and not drop the balls that have been played into the field. Yes, there are follow-through actions in the secondary market that are needed, but once the animal spirits are unleashed, this lion will once again roar. 

Chew Sutat retired from Singapore Exchange (SGX) in July this year. He was senior managing director of SGX, and member of SGX’s executive management team for 14 years. He serves on the board of ADDX and chairs its Listing Committee. Chew was awarded FOW Asia Capital Markets Lifetime Achievement Award this year

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