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MAS' measures spark cautious optimism for Singapore stock market revival: Analysts
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Following the latest announcements, the benchmark Straits Times Index reached an all-time high of 4,273 points on July 24.
SINGAPORE - Efforts to revitalise Singapore's equities market are showing promise, with the benchmark Straits Times Index reaching
an all-time high of 4,273 points on July 24 , following the latest announcements.
However, analysts caution that there is still a lack of clarity on how the appointed asset managers will execute their strategies to effectively support local companies and boost market liquidity.
This comes in response to the Monetary Authority of Singapore's (MAS) July 21 announcement
allocating an initial $1.1 billion to three asset managers to invest in the Singapore stock market.
Avanda Investment Management, Fullerton Fund Management, and JP Morgan Asset Management were appointed to manage the first $1.1 billion tranche under the $5 billion Equity Market Development Programme announced in February.
The move, taken to revive trading on the local stock market as well as draw new companies to list, signals that the Government is invested in building a more attractive capital market ecosystem and boosting liquidity on the Singapore Exchange (SGX), experts said.
Smaller companies that are not component stocks of the benchmark Straits Times Index (STI) have the most to gain.
'Small and mid-cap companies on SGX's mainboard and Catalist stand to benefit from a more vibrant capital market and broader investor base,' said Ms Lee Khai Yinn, head of continuing sponsorship at SAC Capital.
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'Improved visibility, liquidity and valuation will enable these companies to raise capital or pursue acquisitions using their shares at fair value to support future growth.'
She added, 'Beyond injecting liquidity, the deployment should also aim to stimulate trading activity in the market.'
Mr Jason Saw, CGS International group head of investment banking, added that the asset managers have a dual responsibility: to generate returns and to support market liquidity.
'We believe well-governed, fundamentally sound companies, particularly those previously overlooked, will benefit from better valuation support,' he said.
Endowus chief investment officer Hugh Chung added that the initial step will help to bring attention to less-known names in the Singapore stock market, particularly the small and mid-cap companies, which lack representation in investor portfolios.
Mr Shane Chesson, vice-chairman of the Singapore Venture and Private Capital Association, said the $5 billion could be 'boosted several times over' through the asset managers' fundraising capabilities, as well as growing investor interest, especially if strong local companies see the opportunity to list and grow.
Mr Chesson added that once strong companies list and trade well, they'll generate their own momentum and, eventually, external catalysts won't be needed.
In that light, companies considering a listing on SGX should begin evaluating the opportunity by examining the market, involving their boards early, and gathering initial feedback from key stakeholders, he said.
More clarity needed
Still, it remains to be seen how the $1.1 billion will be deployed in the market, and analysts say greater clarity is vital for companies to shape more informed listing and capital-raising strategies.
How the funds will be used to deepen market liquidity and promote research remain key questions, said Mr Robson Lee, a corporate finance lawyer at law firm Kennedys Singapore.
'The devil lies in the details, and ultimately aspirant issuers can have a lot more confidence when they decide to list their companies. It's not just about numbers, we want to attract good quality companies.'
He added that information on fund allocation to support promising small and medium-sized enterprises (SMEs) in their listing aspirations and corporate governance compliance is also crucial.
So far, Avanda, co-founded by former GIC chief investment officer Ng Kok Song, is the only one of the three asset managers to have provided some detail on its strategy.
It will launch a standalone Avanda Singapore Discovery Fund focused on SGX-listed companies, with a strong focus on small and mid-cap stocks. Its strategy will be to target stocks with value opportunities, local champions and turnarounds.
Fullerton Fund Management has said it will set up a unit trust that will be invested in SGX-listed stocks across all market capitalisations.
JP Morgan Asset Management did not reveal its plans, but noted that its team has extensive expertise in researching and investing in Singapore equities.
Meanwhile, with more asset managers expected to join the Equity Market Development Programme by year-end, scepticism is growing over whether the original $5 billion allocation is sufficient for effective market deployment.
MAS did not reveal how many asset managers it plans to appoint. When asked, it also said that it will not guarantee their investment performance, and that asset managers under the programme are solely responsible for their portfolio management decisions.
Mr Lee noted that the asset managers should be afforded the flexibility to make dynamic investment decisions and not be hamstrung by strict targets and requirements set by MAS.
On the $5 billion allocation, Mr Amit Singh, head of South and Southeast Asia capital markets at Linklaters, said there is 'no science or magic number'.
He noted that policymakers will likely assess the impact of the initial investment before deciding if more funds are warranted. Any additional funds allocation must also take into account the broader global environment.
More IPOs to come
Ultimately, the true measure of success of MAS' programme will be whether it fosters a new generation of growth companies that provide long-term investment opportunities while maintaining strong corporate governance.
This would be a much-needed step up from the current market, where a number of companies on Catalist, SGX's growth market board, have been languishing.
Mr Chesson sees brighter days ahead for the Singapore market, citing recent IPOs such as NTT DC Reit and software services provider Info-Tech Systems, with more in the pipeline.
'We can't expect companies to list on a dime but the momentum is building and the overall market conditions globally remain quite conducive. People will be surprised by the scale and growth of some of the listings which are on the potential list right now.'
Deloitte South-east Asia's transactions accounting support leader Tay Hwee Ling said that signs of recovery in the Singapore IPO market are emerging, alongside improving market conditions.
'We have seen renewed interest from global issuers, reinforcing Singapore's appeal as a location for cross-border capital raising,' she noted.
Mr Ho Han Ming, partner at Reed Smith, said the move from a merits-based to a disclosure-based listing regime has been a positive step, but more such measures are needed to build a capital markets ecosystem that ensures transactions are valued fairly and transparently.
Other measures announced by MAS on July 21, such as increased funding support for equities research, are also welcome.
Financial platform Beansprout's chief executive Gerald Wong said: 'The new grant support for research on private companies with a strong local presence can help foster investor familiarity and visibility, potentially building a stronger pipeline of companies preparing to go public.'
He noted that listed companies can also improve shareholder engagement and take more active steps to unlock value for retail investors, such as clearer capital allocation strategies, more transparent communication of growth plans, or improved dividend policies.
SGX on the mend
Whatever the case, investors have so far reacted positively to MAS' efforts to revive the stock market, with the STI crossing the 4,000-point mark for the first time on July 3.
Mr Matthias Chan, head of equities research at SAC Capital, said the large-cap stocks' performance on the STI is not the best indicator of the broader market, and highlighted the small and mid-cap segment as a key area for growth.
'While the small to mid-cap space may be up 18 per cent over a year, it remains down around 6 per cent over a five-year period, suggesting there is further room for outperformance in this space.'
In particular, the sub-$500 million market cap stocks would be one area to watch, he added.
Many non-STI stocks have already benefitted from the returning interest. Examples include construction firm OKP, property development firm Wee Hur and instant coffee maker Food Empire, which have all hit record highs in recent weeks.
Mr Thilan Wickramasinghe, head of research and regional financials at Maybank, said the recent market performance shows that Singapore stocks are finally catching up, and added that he does not believe they are overperforming.
'For more than a decade, the Singapore market has been lacklustre with depressed valuations. Much-needed market reforms, together with favourable macro and geopolitical tailwinds, are bringing back interest to SGX.
'While many stocks are now trading at higher valuations relative to their past, we must question whether historical multiples accurately reflected their value. It was common to see peers listed in other regional exchanges trading at materially higher multiples, and sometimes the very same assets listed abroad commanded significantly higher valuations,' he said.
Mr Vasu Menon, managing director of investment strategy at OCBC, said small-cap stocks have underperformed by a wide margin compared to large-cap stocks over the last five years.
'The MSCI Singapore Index, a greater reflection of large caps, posted a 42 per cent return in the past five years in Singapore dollar terms while the MSCI Singapore Small Cap Index was flat with a mere 0.5 per cent.'
Ultimately, progress in the Equity Market Development Programme shows that the Government is taking concrete steps to support smaller companies, which bodes well for the local bourse over the medium term, he added.
