SMALL-CAP STRENGTH
The three main banks in Singapore – DBS, OCBC, and UOB – dominate the market, accounting for about 25 per cent of every day buying and selling quantity. Their sturdy 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 as we speak.
Nonetheless, over 80 per cent of the listed firms on the SGX have a market capitalisation of beneath US$1 billion, positioning the trade as a small-cap market. This section, significantly small and mid-cap shares, stays undervalued regardless of being well-run, worthwhile, and providing engaging dividends. Revitalising this market section might deliver much-needed liquidity and power to the SGX.
Somewhat than forcing fund managers to spend money on particular person shares, a simpler technique might 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 buyers, together with household places of work, to achieve 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 appropriate route, some trade observers argue that extra might be accomplished to help the SGX. For instance, it’s price 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 firms to checklist right here, it makes little sense if the GIC doesn’t spend money on them, significantly when it does so on different exchanges like Hong Kong. Such an method might 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, may be alleviated if the S$5 billion programme injects enough liquidity into the market. As well as, the tax incentives already introduced will function a pretty catalyst for firms to contemplate the Singapore marketplace for their IPOs.
Nonetheless, there’s room for additional enchancment. One potential space is investor training. Retail buyers, significantly the youthful demographic, are likely to gravitate in direction of abroad markets and extra risky belongings like cryptocurrencies. Provided that the present SGX retail base is basically aged 55 and above, efforts to have interaction youthful buyers 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, moderately than focusing totally on large-cap firms. Brokers, too, must be extra prepared to have interaction with shoppers and promote development and worth shares, aligning with buyers’ threat appetites.
Lastly, attracting massive, well-known firms to checklist on the SGX, similar to PSA, Changi Airport, and NTUC, might function a strong sign of the trade’s competitiveness. Waiving or lowering some transaction charges and taxes might additional scale back prices and make the SGX one of the engaging buying and selling platforms in Asia.
