The delisting of companies from the Singapore Exchange (SGX) in recent years in favour of Chinese markets has been a cause for concern among financial experts.
While Singapore is known to be one of the world’s top financial hubs, Bloomberg Markets wrote that the upward trend of delistings in SGX appears to be a result of “a smaller pool of domestic companies and no hinterland to depend on”, in comparison to Hong Kong’s larger pool and its links to mainland Chinese markets.
Bloomberg reported that “gaming company Razer Inc., one of the country’s few recent consumer-technology successes, led by Singaporean-born CEO Tan Min-Liang and backed by sovereign wealth fund GIC Pte.” has “opted for Hong Kong, which has benefited markedly from its proximity to China” and its “stock connects”, or “authorized cross-boundary investment channels”, to mainland China stock exchange markets.
“Many of the businesses that have left the exchange in the past few years are well-known in Singapore”, according to Bloomberg, which “range from GLP Pte., one of the world’s biggest warehouse owners, to Osim International Pte., Asia’s largest maker of massage chairs”.
“Some chief executive officers who’ve taken their companies private, lamenting what they see as low valuations in the city-state, are seeking more liquid markets that can generate higher stock prices,” added Bloomberg.
“Hong Kong,” for example, “raised $33.5 billion from IPOs in 2018—more than any exchange anywhere—as big name after big name came to market.
“China Tower Corp., a state-owned infrastructure company, raised $7.5 billion in what was at the time the world’s biggest IPO in two years.
“Smartphone maker Xiaomi Corp. raised $5.4 billion, and Meituan Dianping, a food delivery giant backed by Tencent Holdings Ltd., procured $4.2 billion,” Bloomberg reported.
PwC’s head of capital markets in Singapore Tham Tuck Seng told Bloomberg that “Hong Kong’s market is now so much larger and more vibrant than Singapore’s, the two can’t even be compared”.
“The imbalance is practically impossible to right, because companies naturally gravitate to bigger, more liquid markets,” Mr Tham said, adding: “They’re two different fishes”.
Asian equities fund manager at Aberdeen Standard Investments Ltd. James Thom told Bloomberg that his firm has been selling its Singapore holdings to buy Chinese A-shares over the last three years, stating that while Singapore is “home” to “good companies”, he posits that “if you think about the center of gravity in Asia and where it’s going, it’s all shifting to mainland China”.
As recent as last year, even “Southeast Asia’s regional exchanges” such as Vietnam’s Ho Chi Minh Stock Exchange and the Stock Exchange of Thailand have left Singapore, with each bourse having raised $2.9 billion and $2.6 billion respectively, Bloomberg reported, while “the market capitalization of companies with primary listings in Singapore had fallen by S$97.5 billion, or 14 percent, from the end of 2014, according to SGX data”.
“The bourse’s average daily turnover has been halved since 2007,” added Bloomberg.
Speaking to Bloomberg, analyst at Singapore’s CGS-CIMB Securities International Pte Ngoh Si Yin noted that “These trends are worrying”.
Capital-markets lawyer and partner at Gibson, Dunn & Crutcher LLP’s Singapore office Robson Lee, who had spent over 20 years listing “more than 30 companies list on the country’s stock exchange, bringing to market everything from a grocery store chain to a pawnbroker”, told Bloomberg that he had observed the decline as far back as 2014.
He now allocates “more than three-quarters of his time helping companies throughout Asia to restructure and make asset purchases” in comparison to his time working on SGX listings.
Citing the example of sofa maker Man Wah Holdings Ltd., which “was taken private in September 2009”, Mr Lee said that the company was “relisted in Hong Kong at about eight times its market value” in only half a year.
Singapore’s conservative financial and business approach a contributing factor to SGX’s decline?
Chairman and CEO of Cityneon Holdings Ltd. Ron Tan, who had decided to take his company private last year despite having observed considerable growth since a three-year low prior to that, told Bloomberg that investors in Singapore “have become so accustomed to the steadier, dividend-yielding companies that make up most of the market, as is the case in Zurich and Dubai”.
“It’s the ecosystem—the exchange, the fund managers, the retail investors, even the way I’ve been brought up,” he says.
“I’m a Singaporean, so I myself am programmed this way, so I cannot blame the rest of the people here when they look at my own company.”
Singapore’s “emphasis on following rules and rote learning”, says UBS regional chief investment officer at UBS Wealth Management in Singapore Kelvin Tay, has contributed to “a real dearth of new interesting companies” in the Republic.
“We ask ourselves why we don’t create enough entrepreneurs and creative people,” said Mr Tay.
“It’s not that we don’t have them. It’s just that the system does not allow it. If you have to spend so much time becoming exam-smart, you have very little time to be creative.”
Downturn in public-market sector not reflective of Singapore’s overall economic position, says experts
Despite the downturn in its public-market sector, Singapore, according to Bloomberg, has “strengthened its position as a leading wealth hub in Asia, with private banks overseeing more than $2 trillion in assets and providing alternative investment opportunities in structured products, real estate, and private equity”.
SGX’s head of equities and fixed-income businesses Chew Sutat told Bloomberg that delisting is “a global trend” and “a healthy market function that weeds out weaker companies.”
“Unlike some exchanges,” said Mr Chew, “SGX doesn’t refrain from delisting zombie companies just to keep its numbers up”.
Mr Chew also highlighted that SGX has continued to be successful “in helping companies raise funds beyond their initial offerings”, and insisted that “Singapore is still the market of choice for firms looking to expand regionally and tap international investors”.
“About half of the companies listed on SGX are foreign, and institutional money trusts the Singapore market”, he added.
Bloomberg Economics correspondent for Southeast Asia, Australia, and New Zealand Tamara Henderson said that the delisting trend could potentially serve as a positive sign for SGX, as “unlisted companies, free of the constraints of quarterly reporting, are more able to focus on long-term growth, thereby stabilizing the economy”.
“It’s probably a sign of wealth,” concluded Ms Henderson.
Bloomberg reported that the World Bank ranked Singapore “second out of 190 countries for ease of doing business in a 2018 report.
Citing statistics from the International Monetary Fund, Bloomberg wrote that Singapore’s “gross domestic product (GDP) per capita, based on purchasing power parity, ranks third in the world: $98,260” as of last year.
Singapore’s GDP, “primarily driven by manufacturing, trade, finance, and business services,
has grown consistently—albeit at a moderate pace—since the global financial crisis”, added Bloomberg.
Citing a Deloitte report from 2018, the Republic, according to Bloomberg, was also ranked “Asia’s most competitive wealth management center—ahead of Hong Kong and second only to Switzerland globally”.
Government invests into healthcare, biomedicine, and technology startups as a means of boosting Singapore’s economy
In tandem with its vision of a “Smart Nation”, the Singapore Government has “invested billions in nurturing industries such as health care and biomedical sciences, and in creating an attractive environment for technology startups”.
“Since the early 2000s, Singapore has doubled the number of jobs in the biopharmaceutical industry, to more than 6,000, as GlaxoSmithKline, Merck, Roche Holding, and other companies set up local bases,” Bloomberg noted, adding that “None of this is particularly dependent on the health of the stock market”.
Head of Asian research at United First Partners Justin Tang told Bloomberg that “having a sleepy stock market does little to burnish Singapore’s reputation as a financial hub”.
Senior economist at Maybank Kim Eng Research Pte. Chua Hak Bin posited that while “a vibrant capital market is an added advantage or added benefit to the economy,” he argued that “it’s not the only thing”, given other sectors of the economy that are flourishing in the Republic.