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It only takes a spark: 3% of what GIC manages

Chew Sutat
Chew Sutat • 10 min read
It only takes a spark: 3% of what GIC manages
If GIC can allocate 3% of what it manages to fund managers to deploy locally, that may just be the spark needed to revive our stock market / Photo: Bloomberg
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There has been much chatter by different parties recently about the need for a revival in our local stock market across various media. Usual suspects Sias, Society of Remisiers, SG Listcos (which I chair) and even the local venture capital association have aligned our collective interest in seeking fair valuation for public companies. 

The latest to weigh in last weekend was top VC Jenny Lee of Granite Asia in a joint op-ed with my old colleague and friend Ng Yao Loong, who is in transition from the CFO role at the Singapore Exchange S68 -

(SGX) to the position of head of equities. The “journey from private to public markets is not merely about raising capital; it is about fostering innovation, deepening the talent pool, driving economic growth, staying relevant as a financial hub, generating mutual prosperity and creating a better future for all”. Lee was on Forbes’ list of the 100 most powerful women in the world. On the other hand, Ng has had a sterling career in government, investment banking and the Monetary Authority of Singapore (MAS) before his current role. Yet, they conclude that “we cannot do it alone”. If so, who can and must be part of the solution? 

I joked with a regulator friend in the MAS that every seven years or so, a capital markets committee will be convened, especially when the public clamour for change reaches a crescendo. Is the seven-year itch returning? I was part of two such committees as a resource person and also chaired some sub-stream committees. The usual suspects from all corners of the ecosystem will be called up to testify. Everyone will talk up their own book and point the finger at someone else — mostly SGX and MAS. 

But unless we recognise that we should stop pointing and start doing what we ought to be doing ourselves in our corner of the ecosystem, and solve what is the hinge factor which is collectively channelling domestic wealth into our own ecosystem, we may yet make some cosmetic improvements to address a few pet peeves about some rules or more grants, but we will not get very far and continue our relative decline.

Culture shock
Many have commented that our market lacks IPOs and valuations, especially in mid- and small-cap stocks, because of listing costs or regulatory burdens. Another favourite trope is how confidence is lost following the 2013 penny stock saga. Or, we have lost the speculative fervour of a generation of investors who, in the 1990s, used to queue for IPO applications much like buying 4D until they got “Clob-bered” by Mahathir. That generation is probably now well and truly lost because of age. The 1993–96 super bull market mojo came back briefly when investors got “dot-conned” in 2001 and “S-Chipped” in 2006–2007 before the Global Financial Crisis. 

Coincidently, the deregulation of fixed 1% commissions charged by brokers may have reduced the ability of firms to invest in research and the appetite of their agents to be more aggressive in making recommendations on stocks. These coincided with the growth of the wealth management industry, and as insurance agents, financial advisers and banks offered new-fangled global investment options. To keep up with the mood of their retail investors, brokers shifted focus on international equities, further sending our limited pool of retail investment and speculative funds overseas through their online and CFD [contract for difference] platforms. After all, the local retail dollar is well known to punt on platforms unregulated in Singapore — such as crypto.

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It is not true that there is no speculative liquidity in Singapore. We simply channel it overseas while the media and academics remain fixated on the penny stocks that go bust here — even if “pump and dump” remains a time-honoured tradition for less than innocent speculators in many markets, including the enigma collapses in Hong Kong and meme stocks in the US. 
Meanwhile, in Indonesia and Thailand, which have outstripped Singapore’s daily turnover, domestic liquidity — both retail and institutional investment — has stayed local. In turn, their activity attracts international investors, including traders from Singapore, to participate there. 

The lack of listings in Singapore in recent years is not a regulatory or listing cost matter per se. Listing a company in Australia is cheaper even though listing fees are a fraction of the total costs of a listed company. Fundraising costs, for example, can be two to four times higher in Australia and the US than in Singapore. Could it be because financial intermediaries are more gung ho in capital-raising as they are paid higher over there, even if companies with market caps below US$5 billion ($6.8 billion) in the US and those below A$2 billion ($1.8 billion) in Australia get no serious follow-on financing, liquidity or coverage? This means the fate after a more costly overseas IPO is an inevitable delisting.

When markets are on the run, our local entrepreneurs have run the gauntlet of even more painful regulatory regimes like Hong Kong and Taiwan so that they can be quoted there. With India in a bull market now, some are even thinking about an India listing. Or, they will brave frivolous lawsuits by shareholders in the US for a listing there to get what is often a temporary valuation at IPO, only to see prices sink after the lock-up period is over. Shouldn’t the virtuous circle be instead supporting and rewarding our own entrepreneurs with the right valuation here and sustaining them with growth capital and secondary liquidity from the pools of savings we have accumulated here, rather than supporting the capital markets elsewhere? 

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The Australian market is supported by superannuation funds, which prefer up to 90% of their massive domestic savings locally, keeping its market liquid and open for domestic IPOs. Malaysian pension funds like the Employees Provident Fund ensure IPOs go through. Besides investing directly, they also deploy via a network of fund managers. Insurance companies that offer par and non-par products in Malaysia are required to invest locally, creating constant new money. We have a financial hub with no such rules, so insurance money raised from Singaporeans flows out.

Singapore is already a paragon in Asia for corporate governance scores and raising governance standards and retail investor protection further will not get more money into the market nor restore confidence. Most retail investors will not glance at a prospectus beyond the gatefold. They go where things are exciting — often at their own peril despite all fair warning. If we accept that we ultimately cannot protect people from themselves and that regulatory tools like “trade with caution” will only draw more punters to the stock, then we should just focus on education.

There will always be stock investors who make bad decisions and lose money. Some companies succeed while others fail too. Singapore is not unique with corporate and governance failures, especially in the small-cap market. What is unique is we keep talking about it, whereas it is taken in stride in other markets. A Hong Kong friend joked that we in Singapore are so good at talking down our market that we do not need short-sellers to stop the occasional irrational exuberance. 

Are we really better off if our retail investor capital is lost in unregulated markets and platforms if they are less interested in our own? City Developments achieved top scores in corporate governance and ESG but because its valuation was not as high as other stocks in India and Japan, it was removed from the MSCI Singapore index on May 31, leading the likes of BlackRock to trim its stakes and lose its status as a substantial shareholder. If we do not accord our own companies the right valuation by investing locally, we will continue to ebb institutional funds.

A shot in the arm
My Chew on This column, “Changing of the Guard a time for reflection” (Issue 1135), was coy about slaying some sacred cows. In this world of small gardens and high fences where the rules of globalisation have morphed into looking after one’s own interest, should we not start looking after ourselves a tad more by thinking or preferencing our own market? Should we speak freely and say we have more to gain by asking institutional fund managers, insurers, private equity and family offices to deploy a reasonable portion of their assets under management in Singapore equity and bond markets?

We have successfully grown on our own through the fruits of our savings from labour, good stewardship from Temasek and GIC growing our reserves, as well as our economic agencies Economic Development Board and MAS succeeding in attracting all manner of funds here that we are the financial hub in Asia with over US$3 trillion managed out from Singapore. 

But if our entrepreneurs have to depend on the health of the US markets to find growth capital, then it is not a question of ego for Singapore’s financial hub status to have a vibrant equity market. It is both unsustainable and a risk if we cannot reward and support innovation and entrepreneurship ourselves.

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The Japanese figured that out in 2014. Left in a 25-year coma, the signal from its Government Pension Investment Fund to allocate a few percentage points to domestic equities was the hinge factor and turning point that led to the Nikkei breaking its 1989 high earlier this year. They did not do it themselves to avoid moral hazard and reputational risk, but farmed it out to local fund managers who placed orders through brokers and with capital to support IPOs and secondary liquidity. In turn, that catalysed the ecosystem, which had been losing talent for years. These limits were raised some years later, and as local retail started coming to the market, supported by tax incentives from their own pension investments, foreigners started flocking back as there was liquidity and volatility for them to ride on. Domestic confidence attracted foreign confidence.

Yes, there were some governance improvements and efforts to get listed companies to improve their stock prices by focusing on net tangible assets. But these supply-side initiatives only kicked in after demand started generating a virtuous circle. Last year, Chew on This called Japan the dark horse for 2023. By 2Q2023, US investment banks and Bridgewater were bullish on Japan. By 2H2023, private banks were recommending Japan. Liquidity begets liquidity and fuels valuation. The question is: Who will light that first spark here?

We do not need all our sovereign wealth funds to invest entirely in Singapore. That would be foolish and risky for us as a nation. But the signal of a 3% allocation, from what is managed by GIC — which manages funds from CPF in overseas markets, per its mandate from the Ministry of Finance — to be deployed through local managers dedicated to our market, may be all we need. Confidence restored is self-fulfilling. In the interim, stop complaining. Let’s stand up and be counted, if we really want a better local market.

Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi­-asset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore

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