What lies ahead for the new CEO of SGX

Date: July 23, 2015

Much is expected of the new CEO of SGX, as the wish-list published in the media reveals. Various concerns raised have been largely about the market; the challenge of increasing participation by investors, low trading volumes, lack of good listings and improving market valuation. It is not easy for anyone to occupy the SGX CEO’s chair, given the many issues pending resolution. The competing interests of several stakeholders need to be balanced. Many are expecting the new CEO to provide the solution to the current problems.

How can SGX increase the participation by investors in our market?
The Exchange needs to urgently address liquidity issues. Internally, there is $56 billion dollars lying in the fixed deposits earning little returns not even enough to cover the CPI. The depositors are not growing their money. They need to know that they have to invest. Much has been said about this and yet there is great reluctance by the Singapore citizens to enter the stock market. Is there a lack of appropriate products suitable for Singapore’s risk-adverse investors? Not really. The recent announcement by MAS to introduce savings bond is a good start. However, that alone is insufficient. In my view, it is largely ignorance of the investment products and how to access them. There is lack of skill in managing risks in the products and also lack of advisory services to help retail investors make an informed decision. They are generally left to themselves. Although SGX has introduced several initiatives to educate the public through online and physical programmes like roadshows, much more needs to be done. To help improve liquidity, SGX has also introduced a minimum board lot size of 100 shares to enable ordinary citizens to start their investment journey, especially, in the blue chips which have been beyond the reach of many ordinary Singaporeans. This initiative has improved the securities turnovers by 6.2% as compared with a drop of 32.4% a year before. These are all good developments and must be supported.

SGX needs to also look at certain aspects affecting the integrity of our market. Confidence and trust can be further improved. Many retail investors have their investments stuck in several companies that are suspended by SGX with no updates, their investee companies delisted with investments reduced to little or no value. In addition, criminal investigations by the Commercial Affairs Department into listed companies provide no updates and no finality in a number of cases and the outcome only after a prolonged period of time. A fine example is China Sky. This stock was suspended four years ago for failure to comply with SGX listing rule requiring special audit. Criminal investigations also commenced concurrently. The stock still remains suspended without any updates, compounding the frustration and disappointment of the shareholders. There well could be good reasons for delay of some of these cases but there needs to be more transparency to appease the frustration of the investors. Unfortunately, this is only one of several disappointments retail investors in Singapore are currently facing. One only needs to look across the Causeway at Bank Negara website on how investors there are kept updated regularly on the status of cases being investigated.

The answer to the question as to why many investors are still staying out of the market, therefore, does not require much thinking. It is the loss of confidence and fear. To them, caveat emptor means nothing and they tend to hold SGX responsible. This has to be an area of concern to the new CEO to bring confidence back to the market. Investors too need to be educated and SGX must work more with platforms like SIAS to reach out to more ordinary citizens to help them understand not only how to invest but also the investing environment relating to their investee companies.

, SGX should work on bringing more investors immediately from the ASEAN region which has a total population of over 625 million. A recent Merrill Lynch study highlighted that population trend in ASEAN is more favourable than in China or India over the next decade. China’s labour force is expected to shrink from 2020 onwards, whereas the labour force in ASEAN is expected to keep growing. While India’s labour force will grow even faster than in ASEAN, ASEAN will still produce a greater number of skilled workers because of the huge difference in adult literacy level. The ASEAN link, when announced, gave much hope to our market and our listcos. It has come to a grinding halt. There is an urgent need to revive it. The new CEO, given his known skills, I am sure, will spend much time to bring the parties back to the table. Singapore market needs more investors and our listcos will grow consequently.

SGX now needs to think out of the box and be different i.e. be transformational. SGX should be completely commercial and should not have any regulatory function. It should concentrate on business and should facilitate mergers, acquisitions, bringing Singapore listcos to tie up with foreign partners. As a private banker, Mr Loh is well placed to spearhead this move.

The crucial question is where lies the future of SGX? If SGX remains where it is today, it will never grow. So what does it grow into?
The only way it can grow is to understand where the companies listed on the SGX are growing. China is obviously one answer everyone gives but it has come to a plateau at the moment. There has to be a growth market like India which is just equivalent to the size of China. The question investors should ask board directors at meetings- Where are the next big frontiers? The next big frontiers are India and Africa. If companies are moving into India and Africa, as we do see it already happening, then the stock exchange must also help these companies. Ascendas, Singtel, PSA and Temasek have all successfully made forays into India and Africa. In fact, Temasek has infused more than Singapore dollar more than S$1 billion into Indian companies in the first quarter (Q1) of the current fiscal year- matching its investment in all of last year, as it increases its bets on Asia’s third largest economy.

How then can SGX help the companies listing on its bourse?
There are a few ways SGX can help these companies. They could be joint ventures or business dealings between the Singapore listed company and the overseas entity. On a commercial level, at the moment, SGX is unable to get involved due to its regulatory role. However, SGX being a listed company itself must also think of where its next frontier is. The next frontier cannot be digital and technology which are already here. It needs to create volume and mass. That can only come through by having a stake in larger exchanges. It has, currently a small stake in the Bombay Stock Exchange. Unfortunately, Singapore is small and India is big. I don’t think Singapore would want to buy a big stake in the National Stock Exchange (NSE) of India but it could be the other way round. This is where the regulators may have to step up and say that our future lies with India and we need to tie up with it in a bigger way. Perhaps that is the angle Mr Loh should look at to try and sell a meaningful stake of SGX to NSE and to facilitate the exchange and fast-tracking of companies that are listed on both Exchanges, SGX and NSE. The companies that are floated on NSE will have to realize that if they really want to tap into foreign capital, they will have to go to a transparent jurisdiction like Singapore. If they are connected somehow with Singapore then US and European flow of funds tapping into India via Singapore become an avenue. As more companies use Singapore as a venue for fund raising, or list in Singapore, it can only raise our market valuation and make it more attractive for quality listing.

The US and Europe investors have limitations investing into emerging countries. Most of them have criteria as to where they invest their funds and Singapore can play that role to facilitate to attract US and European funds to emerging markets by bridging the gap of the investors needs through its established regulatory regime. For example, the recent listing of Bharti’s corporate bond in Singapore, the third largest telco operator in the world, has raised US$1 billion globally. 66% was allocated to US, the highest allocation to US investors in any Indian deal. It was oversubscribed two times demonstrating the demand for such listings in our market. It also confirms the strong interest Indian companies have in Singapore because of Singapore’s reputation as a financial centre in Asia. Singapore has a strong and stable government, certainties in policies, zero tolerance to corruption and a transparent market with strong liquidity. Businesses also say, despite the challenges, they see growth opportunities in various sectors, as India seeks new digital heights. According to recent media reports, Singapore is a front runner to fulfil Indian Prime Minister Narendra Modi’s pet project of building 100 “Smart Cities” across the country. Where is SGX in all these?

My suggestion may sound radical but may be timely and necessary in the interest of the growth of our market. SGX should discontinue with its traditional role of being a listing authority, regulator as well as a listed company? Many have questioned the current dual role of SGX. It is time to relieve SGX of its regulatory role and allow MAS to be the sole regulator. This would allow SGX to concentrate fully on its own growth as well as the companies that are listed on the SGX. 

The Exchange also needs to balance the needs of all stakeholders. For example, one such group is the concerns of the remisiers with the introduction of all-day trading. Mr Loh will have to actively engage and find solutions to help the remisiers to implement the all-day trading. Nevertheless, it is also the responsibility of the remisiers to actively seek to improve their service to clients and retail investors in general and investors must also respond to the call to invest with knowledge. The new CEO should communicate regularly with all stakeholders to find common ground to enlarge and prosper the market.

Finally, SIAS agrees with Mr Ong Chong Tee of MAS that industry stakeholders should work together to achieve a robust and vibrant securities market.

David Gerald

This commentary was first published in The Business Times | Wednesday, July 15, 2015