With total securities turnover of $22.8 billion Singapore dollars ($17.7 billion) in August 2024, the Singapore Exchange achieved its highest trading volume in two and a half years. Yet this figure pales in comparison to the Hong Kong Stock Exchange’s $3 trillion Hong Kong dollars ($385.6 billion) turnover in the same month, a difference that highlights the persistent liquidity gap between the two Asian financial hubs.
This disparity exists despite Singapore’s robust economic fundamentals. The city-state’s economy surpasses Hong Kong’s in size and attracts more foreign direct investment. However, according to figures reported in May 2024, the total market capitalization of companies listed on the SGX stands at approximately SG$798.55 billion, roughly one-seventh the size of Hong Kong’s HK$32.9 trillion market.
Singapore’s government has recognized these challenges and is mobilizing resources to address them. In September 2024, Second Minister for Finance Chee Hong Tat announced plans for “bold changes” to regulatory structures, signaling a new phase in the country’s efforts to revitalize its equity markets. Alternative financing from companies like EquitiesFirst, which enables investors to access capital financed against equity holdings, could help boost this revitalization effort, freeing up liquidity to invest in Singaporean companies.
Market Fundamentals and Potential
Singapore’s market revitalization initiatives come at a critical moment. Regional competitors are gaining ground, with Indonesia now claiming the title of Southeast Asia’s largest stock exchange. Many of Singapore’s homegrown technology companies have opted for U.S. listings, following the path blazed by super-app Grab’s 2021 Nasdaq debut.
SGX Chairman Koh Boon Hwee has framed the situation in stark terms. “Some may argue that the stock market is only one aspect of our financial ecosystem, but it is more like a pillar,” he wrote in the exchange’s latest annual report. “And we should recognize that if this one pillar were to falter, the whole is put at risk.”
The metrics support his concern. Singapore’s turnover velocity — a key measure of market liquidity calculated by dividing turnover by market capitalization — stood at just 36% in 2023. This trails significantly behind Hong Kong’s 57% and Japan’s 104% for the same period.
Yet Singapore’s market performance tells a different story than its liquidity metrics might suggest. The Straits Times Index has recorded annual gains every year since 2021, with only a minor 0.34% decline in 2023. This contrasts sharply with Hong Kong’s Hang Seng Index, which suffered four consecutive years of losses, including double-digit declines between 2021 and 2023.
Meanwhile, the appeal of U.S. markets for Southeast Asian companies has proved problematic for both the companies themselves and Singapore’s market development. Southeast Asian companies listed on Nasdaq have seen their share prices fall by a median of 80% since listing, suggesting that geographic and cultural distance may create barriers to success in American markets and that Singaporean companies may fare better listing on the SGX.
Market Development and Equities-Based Financing
Singapore’s planned reforms target several key areas. The government is considering removing outdated rules, reducing listing costs, and introducing incentives for market makers to facilitate price discovery. These changes could be implemented within a 12-month review period. The reforms aim to position Singapore as the premier listing destination within the Association of Southeast Asian Nations, a region projected to become the world’s fourth-largest economy by 2030. The ASEAN Trading Link, launched in 2012, provides infrastructure for regional market integration by connecting the exchanges of Singapore, Malaysia, and Thailand.
Market experts emphasize the need for broader institutional development. The Singapore government is working to foster an institutional asset-management ecosystem that includes the local stock market. This represents a shift from previous approaches that focused primarily on the supply side of the marketplace.
Success stories from other Asian markets offer potential lessons. Japan’s recent market reforms have shown promising results, reducing the percentage of stocks trading below book value from 50% to 36%.
But in a recent letter to shareholders, SGX CEO Loh Boon Chye acknowledged that “more needs to be done to structurally enhance liquidity and listings” and that “a more holistic approach with efforts from all stakeholders is required for real change to take place.”
The chairman’s perspective suggests a maturing approach to market development. “We must learn to accept market volatility and the occasional challenges that come with it,” Koh noted. “With volatility comes active trading. And active trading, in turn, enhances liquidity. A highly liquid market drives valuation, paving the way for initial public offerings.”
The current situation, where 67% of SGX stocks trade below book value, presents an opportunity for value appreciation as reforms take hold, particularly given the influence of high interest rates that could be set to decline. With Singapore’s total market capitalization positioned to grow and the exchange’s highest trading volume in two-and-a-half years in 2024, the market shows promising signs of momentum that could accelerate as regulatory changes and enhanced market-making incentives take effect.
For investors considering entry into Singapore’s market during this period of transformation, securities-backed financing through firms like EquitiesFirst could provide flexibility to increase positions. The firm’s ability to work with thinly traded stocks and provide long-term financing arrangements could help investors navigate potential market volatility as Singapore implements its ambitious reform agenda.
EquitiesFirst’s equities-based financing allows shareholders to access capital while retaining exposure to their equity assets, potentially contributing to market liquidity while maintaining long-term investment positions.
