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 robust efficiency has led to a big improve of their mixed weighting within the Straits Instances Index (STI), from 40 per cent in 2019 to 54 per cent immediately.
Nonetheless, over 80 per cent of the listed corporations on the SGX have a market capitalisation of below US$1 billion, positioning the trade as a small-cap market. This section, notably small and mid-cap shares, stays undervalued regardless of being well-run, worthwhile, and providing engaging dividends. Revitalising this market section might carry much-needed liquidity and power to the SGX.
Somewhat than forcing fund managers to spend money on particular person shares, a simpler technique may very well be to create indices and exchange-traded funds (ETFs) primarily based on small and mid-cap corporations – 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 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 course, some trade observers argue that extra may very well be carried out to assist 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 corporations to checklist right here, it makes little sense if the GIC doesn’t spend money on them, notably when it does so on different exchanges like Hong Kong. Such an strategy might additional improve the attraction of the SGX as a list vacation spot.
The difficulty of delisting, which has been a rising concern with about 20 corporations delisting final 12 months and 5 to date this 12 months, may 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 corporations to contemplate the Singapore marketplace for their IPOs.
Nonetheless, there’s room for additional enchancment. One potential space is investor training. Retail traders, notably the youthful demographic, are inclined to gravitate in the direction of abroad markets and extra risky property like cryptocurrencies. Provided that the present SGX retail base is essentially aged 55 and above, efforts to have interaction youthful traders might 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 development potential, reasonably than focusing totally on large-cap corporations. Brokers, too, must be extra prepared to have interaction with shoppers and promote development and worth shares, aligning with traders’ danger appetites.
Lastly, attracting giant, well-known corporations to checklist on the SGX, similar to PSA, Changi Airport, and NTUC, might function a robust 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.
