SMALL-CAP STRENGTH
The three major banks in Singapore – DBS, OCBC, and UOB – dominate the market, accounting for about 25 per cent of daily trading volume. Their strong performance has led to a significant increase in their combined weighting in the Straits Times Index (STI), from 40 per cent in 2019 to 54 per cent today.
However, over 80 per cent of the listed companies on the SGX have a market capitalisation of under US$1 billion, positioning the exchange as a small-cap market. This segment, particularly small and mid-cap stocks, remains undervalued despite being well-run, profitable, and offering attractive dividends. Revitalising this market segment could bring much-needed liquidity and energy 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 family offices, to gain exposure to small- and mid-caps, thus enhancing liquidity. Such a move could significantly alter the trading dynamics of the local market by bringing institutional money into previously neglected segments.
While the EMRG’s S$5 billion initiative appears to be a step in the right direction, some industry observers 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 regional companies to list here, it makes little sense if the GIC does not invest in them, particularly when it does so on other exchanges like Hong Kong. Such an approach could further increase the appeal of the SGX as a listing destination.
The issue of delisting, which has been a growing concern with about 20 companies delisting last year and five so far this year, may also be alleviated if the S$5 billion programme injects sufficient liquidity into the market. 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.
