The Singapore Exchange (SGX) has seen its IPO pipeline rebound in H1 2017 but it will have to significantly boost the liquidity of its securities market relative to competitors such as Hong Kong, Australia and Tokyo if it intends to retain its relevance as a globally competitive stock exchange.
Recent quarters have seen a wave of delistings with factors such as liquidity and valuations cited for privatisation deals. Meanwhile, a number of enterprises in the city-state are choosing to list in Hong Kong or Australia.
According to data from Duff & Phelps, the number of IPO listings in Singapore increased in H1 2017 to 12. However, total capital raised was significantly lower, at approximately $300 million when compared with 2016.
Dr Esnest Kan, Deputy Managing Partner (Markets) of Deloitte Singapore, notes: “We are seeing a great start to the IPO activity this year with nine IPOs. If we take into consideration the one registration and three lodgements as at 30 June 2017, we are seeing unprecedented level of funds raised since 2013.”
Terence Wong, the CEO of asset management firm Azure Capital, whose investments are heavily weighted towards Singapore equities, believes that a key factor in boosting liquidity and enhancing the appeal of Singapore’s equity capital markets is injecting cash from Singapore’s Central Provident Fund (CPF) – the city-state’s enforced savings scheme – into the local securities market.
The SBF had argued for the same in 2016, noting that CPF money is pooled with Singapore’s reserves and managed by Singapore’s sovereign wealth fund (SWF), GIC.
Unlike jurisdictions such as Australia, New Zealand and Tokyo – whose pension fund is a leading player in its stock market – GIC invests CPF capital abroad.
In this case, Singapore’s government could consider separating the CPF component and managing it differently. This could free these funds from GIC investment restrictions, boosting Singapore’s equities markets in the long-term.
Research conducted by international money-management newspaper, Pensions & Investments (PI), and global risk-management and advisory company Willis Towers Watson (WTW) indicates that Singapore’s CPF has $211.4 billion in assets under management (AUM).
Meanwhile, its 2016 annual report indicated that its balances amounted to S$328.9 billion ($241.4 billion), excluding the net amount withdrawn to support housing and investments, which stood at S$221.1 billion ($162.2 billion).
While the 2015-16 period saw a string of delistings and a stagnant IPO pipeline, Wong believes investing CPF is a measure that could boost the IPO pipeline of the SGX and enhance its appeal as a listing destination.
Wong explained to DEALSTREETASIA: “This is partly what I am doing [with my fund]. I want to inject confidence into the market because confidence makes confidence. It leads to greater liquidity, liquidity leads to performance, and performance leads to more performance. That’s what we need. It sounds simple but we want to highlight the fact that Singapore is undervalued and bring in the money.”
Wong opines that if local funds and founders believe in the Singapore equities market, a virtuous cycle will be created where retail investment follows trends of institutional investment into Singapore equities, driving liquidity on the city-state’s bourse.
“After they see markets have moved up and there’s sufficient liquidity, I believe bigger funds will come in. And when the valuations are there, this will translate to Singapore being a highly liquid market. There are many rules and regulations that are respected by the international community, there’s political stability and all these other external factors that are there. We just need to improve on our valuations. Once there are fair valuations and sufficient liquidity, I believe the IPOs will come swinging by.”
He adds, “The IPO volumes I saw when I first started out in 1999 were ridiculous. I remember seeing 70 IPOs that year. And in the first 8 months of 2000 and after that, every year I saw about 40 IPOs. Singapore was once crowned as the IPO location and a lot of our regional peers wanted to come here to list. So I believe that we can get there again.”
Wong is not alone in this belief. In an interview with this portal, John Fearon of Sugar Ventures said: “If you take the lessons of the ASX – which is not the biggest stock exchange in the world but still very sizeable – there is liquidity for startups. The lesson that I see there is the superannuation funds model, which allows for local companies in Australia to access liquidity in the securities market there. I think that is probably missing in Singapore.”
“My suggestion to Singapore government is for the SGX to hopefully benefit from these lessons and take some of the monies that are put into the CPF fund to be diverted and given to funds managed by accredited local fund managers, and then to allow the public to divert some money – based on their risk profiles – to those funds which match their risk appetite.”
He adds, “That will help in a couple of ways. The funds and SGX need to take more risks, and investors need to take a greater risk on small-cap stocks in the local bourse which isn’t happening with either GIC or Temasek. They are not investing in those small-cap stocks and giving those guys a chance. That will then help those fund managers in Singapore take a punt and potentially grow the fund management side of the business.”