Chapter 2. Emergence of Singapore as a Full-bodied Financial and Banking
2.5 Evaluation of the evolution of Singapore’s banking and financial market
2.5.2 Singapore’s stock market
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would more easily put Singapore on the map as a leading world center for FX trading, having itself a strong currency.
Furthermore, while Singapore ranked as the third largest FX center in the world, the USA and the UK still made up for 59.8% of the global daily FX turnover in 2013, an increase of 8.9 points since 1998 (Bank for International Settlements, 2013, p. 14). This shows that there is increasing competition between secondary FX centers like Singapore, Hong Kong and Japan, and primary FX centers (i.e. the USA and the UK). The latter get an ever-growing share of the market.
2.5.2 Singapore’s stock market
The Singapore Exchange (SGX) is Singapore’s trading platform for stocks, bonds, and other securities24. It was born from the merger between the SES25 and the SIMEX in 1999 (Hew, 2005, p. 5).
It has achieved tremendous growth since 1973. Thus in 2013 it was the
“largest securities market in Southeast Asia with approximately 1 trillion [SGD] total market capitalization” and “the No. 1 offshore venue for Japan, China, Taiwan, India and ASEAN futures” (Singapore Exchange, 2013, p. 7-9).
There are two main steps that allowed SGX to reach this enviable situation:
The SES got opened to foreign companies in the 1980’s (Hew, 2005, p. 5).
In 1987 the Stock Exchange of Singapore Dealing and Automated Quotation (SESDAQ) was created, similarly to the American NASDAQ. It enabled newly established technology companies to go public (Hew, 2005, p. 6).
However, a couple of examples show that Singapore has not yet reached a critical mass, which outlines some weaknesses of Singapore’s financial cluster:
On the MSCI All Country World Index that “is designed to measure the performance of equities in developed and emerging markets”, Singapore only represents 0.5% of the world’s capitalization (versus 3.4% for Switzerland, and 1.0% for Hong Kong) (AGF Investments , 2014, p. 1).
24 Securities are any kind of assets, ranging from stocks, bonds, futures, etc.
25 The SES itself was created after the split of the Stock Exchange of Malaysia and Singapore (SEMS) into two separate entities (one for Singapore, one for Malaysia) in 1973.
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Therefore, it indicates the need for the MAS to push for more companies to go public, and to attract more foreign companies.
Many thought that the joint venture between the SGX and the American Stock Exchange established in 2001 would truly benefit Singapore’s financial cluster, and could lead to further collaboration in the future.
Nevertheless, it was not a success as only few synergies emerged from it.
The only benefit was for the SGX to be able to list five of the most popular exchange-traded funds (ETF)26 in the USA. Thus, in 2009 the agreement was terminated (NYSE EURONEXT, 2009).
This problem has to be fixed as fast as possible to keep Singapore’s competitive advantage. The answer to the SGX issues concerning its critical mass could find a solution in marketing Singapore as a hub for international companies to get listed in the Asia-Pacific region.
2.5.2.1 Attractiveness of SGX for foreign companies
Over the last decade Singapore has achieved an enviable status as a platform for foreign companies to go public. Thus in 2013, 40% of the 770 companies on the SGX were non-Singaporean (Singapore Exchange, 2013, p. 7). They mostly originate from China, the Middle East and India, as these countries are famous for their underdeveloped financial markets, and the administrative hurdles to go public (Neo, 2008, p. 63).
Since the time China approved of its companies to get listed on the SGX, Chinese firms have flocked to the city-state to go public. The start of this exponential trend can be traced back to 2003. For instance, in 2004 42 Chinese companies got listed on the SGX.
The SGX has a set of features that attract them. Listing requirements are lower in Singapore than in China, and require less time and money. In the People’s Republic getting public can take up to three years (compared to Singapore where it takes
26 Exchange-traded funds, also called ETF, track, replicate and match the value of indexes, such as the Dow Jones, or NASDAQ, etc. So, ETF are portfolios of the shares composing the underlying replicated index. It is different from traditional actively managed funds where the fund manager tries to beat the market.
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around 9 months). What’s more, getting listed in Singapore allows many Chinese companies to bypass the control of the communist government on firms’ capital.
Though Hong Kong may seem like a natural choice for Chinese companies, many CEOs of Chinese SMEs find Hong Kong stock exchange too packed with large state-hold corporations from the Mainland.
Thus, Singapore presents itself as a good option for them. Furthermore, in 2005 and 2006 the SGX signed Memorandum of Understanding (MOU)27 with Zhejiang Provincial Government (浙江省), Shandong Provincial Government (山東 省), and the Wuxi Municipal Government (無錫市) in China, to ease the listing of companies originating from those areas on the SGX (Lu, 2014). Similarly, the Singaporean government has launched a series of seminars targeting Chinese investors, and it has translated its listing requirements in Mandarin Chinese (Jin, 2005, p. 217).
Another aspect that has made the SGX so appealing for Chinese firms has been its status as a low-cost listing platform, as it is reportedly almost two times cheaper than in Hong Kong. Therefore, Singapore is a more affordable option for Chinese SMEs that cannot afford Hong Kong, but still want the benefits of raising money on overseas stock market.
On the same trend, over the last couple of years Singapore has pushed for a simplification of administrative processing rules. For instance, the MAS abolished minimum earnings requirements on the SESDAQ for foreign companies (Jin, 2005;
Lu, 2014).
2.5.2.2 The ASEAN Trading Link
Not all efforts of the SGX have gone towards attracting Chinese investors.
Thus in 2012 the SGX, Bursa Malaysia and the Stock Exchange of Thailand altogether launched the ASEAN Trading Link.
It aims at providing brokers in the ASEAN with opportunities in other national stock markets in the region, as it works as a one-stop shop for would-be investors (Singapore Exchange, 2013, p. 16).
27 A Memorandum of Understanding (MOU) is a document that expresses a bilateral or multilateral agreement between at least two parties. It states a common will, goal, or line of conduct.
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It is part of a greater plan to move towards a closer ASEAN economic partnership, lower transaction costs, and the enforcement of similar financial standards in the region. In 2013 The Philippines Stock Exchange agreed to take part in it, while the Ho Chi Minh City Stock is still holding talks about whether or not to join (Citibank, 2013, p. 2).