SMALL-CAP STRENGTH
The three big businesses in Singapore- DBS, OCBC, and UOB- dominate the market, accounting for about 25 per share of daily trading volume. Their powerful functionality has led to a substantial boost in their combined weight in the Straits Times Index (STI), from 40 per cent in 2019 to 54 per share now.
But, over 80 per share of the listed businesses on the SGX have a market capitalisation of under US$ 1 billion, positioning the trade as a small-cap business. This section, especially small and mid-cap companies, remains undervalued despite being well-run, prosperous, and offering attractive income. Revitalising this industry sector may provide much-needed cash and power to the SGX.
Rather than forcing fund managers to invest in individual stocks, a more effective strategy could be to create indices and exchange-traded funds ( ETFs ) based on small and mid-cap companies- perhaps an SGX50, SGX100, and SGX200.
These funds would make it easier for institutional investors, including home offices, to get exposure to smaller- and mid-caps, therefore enhancing cash. Such a move could drastically affect the buying dynamics of the local marketplace by bringing administrative wealth into formerly neglected parts.
While the EMRG’s S$ 5 billion action appears to be a step in the right direction, some business watchers argue that more could be done to support the SGX. For example, it is worth considering if government-backed funds like the Government of Singapore Investment Corporation ( GIC ) should invest in SGX-listed stocks.
If the SGX succeeds in attracting local companies to record here, it makes little sense if the GIC does not participate in them, especially when it does so on other markets like Hong Kong. Such an technique may further enhance the attractiveness of the SGX as a list destination.
The issue of blacklisting, which has been a growing problem with around 20 firms delisting last year and five so far this year, may also be alleviated if the S$ 5 billion program introduces enough liquidity into the business. In addition, the tax incentives already announced will serve as an attractive catalyst for companies to consider the Singapore market for their IPOs.
However, there is room for further improvement. One potential area is investor education. Retail investors, particularly the younger demographic, tend to gravitate towards overseas markets and more volatile assets like cryptocurrencies. Given that the current SGX retail base is largely aged 55 and above, efforts to engage younger investors could help diversify the investor base and encourage more participation in the local market.
Analyst coverage of mid- and small-cap stocks could also be enhanced. Analysts should be encouraged to identify and promote undervalued stocks with growth potential, rather than focusing primarily on large-cap companies. Brokers, too, should be more willing to engage with clients and promote growth and value stocks, aligning with investors ‘ risk appetites.
Lastly, attracting large, well-known companies to list on the SGX, such as PSA, Changi Airport, and NTUC, could serve as a powerful signal of the exchange’s competitiveness. Waiving or reducing some transaction fees and taxes could further reduce costs and make the SGX one of the most attractive trading platforms in Asia.