The Singapore Exchange (SGX) in early June announced the addition of 29 companies to its watchlist, bringing the total number of scrutinized firms to 78—approximately 10% of all listed companies—and resurfacing broader concerns that the SGX is losing ground to regional exchanges, particularly the Hong Kong Exchange. The SGX was formed in 1999 and is an outgrowth of two previous Singaporean exchanges, and it has become a market leader due to its regulations and transparency, as well as Singapore’s political neutrality.
- Twenty-seven companies were added to the watchlist for failing to meet the revised minimum trading price requirement and two firms were added for failing to meet profitability requirements, according to the Straits Times. These companies will have 36 months to meet the necessary benchmarks; if not, they will be removed from the exchange.
- In 2016, 27 firms with a total market capitalization of Singapore Dollar (SGD) 15.54 billion were delisted from the SGX, while only 16 firms with a total market capitalization of SGD 4.431 billion were added, according to The Business Times, a Singapore business publication.
The expanding number of watchlisted companies on the SGX underscores broader concerns with the exchange’s decreasing value in traded shares and the decline in the total number of listings, which collectively is reducing liquidity.
- Using data from the World Federation of Exchanges, we calculated from January 2011 to April 2017 the rolling one-year average monthly percent change in value of electronic order book share trading in the local currency for the primary exchanges in Malaysia, Indonesia, Hong Kong, the Philippines, Singapore, Thailand, and Vietnam. Of these exchanges, Singapore had the greatest decline in the value of shares traded, falling approximately 30%.
- We also used data from the World Federation of Exchanges to calculate the year-over-year percent change from December 2010 to April 2017 in the number of total and foreign companies listed on these same exchanges. Singapore Exchange had the second greatest decline in the total number of firms listed—a decrease of 3.34%, behind only Bursa Malaysia’s 5.96% decline—and had the greatest percent drop in the number of listed foreign firms, losing more than 13%.
Several factors driving companies to other exchanges
Multiple reasons probably contribute to the decline in trade value and listings on the SGX, to include the progression of exchanges in Asia, economic growth in China, and more permissive share structures offered in other markets. The decline in market liquidity on the SGX also could be influencing firms to list elsewhere.
- The creation of the SGX in 1999 came at a time when other exchanges in Asia were less developed; for instance, from 2003 to April 2017, the number of listings grew 95% on the Hong Kong Exchange, 62% on the Indonesia Stock Exchange, and 58% on the Stock Exchange of Thailand, based on information from the World Federation of Exchanges. The expansion of these and other regional exchanges probably has tempered demand for SGX listings.
- Chinese companies listed on the SGX—the number of which has declined 28% from December 2010 to April 2017, according to a review of SGX’s monthly reports—are delisting in Singapore and returning to China because of the growth in their local market and, in some situations, because they were removed from the SGX for not meeting requirements. Singaporean companies at an increasing rate also are pursuing listings in Hong Kong to deepen their business presence in the greater China market, according to the Straits Times.
- Singapore’s largest startup, Sea Ltd., is a gaming company that recently filed for a potential initial public offering in the United States, according to Bloomberg, and another gaming company, Razer Inc., also is thought to be exploring a US IPO, according to a separate Bloomberg report. It is possible these firms are exploring an IPO in the US because its markets allow for dual class shares, which technology companies more frequently are utilizing.
SGX attempting to reverse decline
SGX leadership is undertaking several initiatives to enhance the exchange and make it more appealing to local and foreign firms, but it is unclear whether these efforts are sufficient to appreciably reverse the declines in volume and listed shares. The global community has long viewed Singapore as a hub for international commerce and markets, and maintaining a dynamic stock exchange with domestic and international listings is important to the city-state’s continued prominence.
- As of late May, the SGX was nearing a deal with the city’s technology regulator to develop a strategy wherein the SGX would pair technology companies with investors with the expectation these startups would list on the exchange, according to Bloomberg.
- In February, the SGX authored a consultation paper seeking public feedback on whether dual class shares should be introduced and, if so, what safeguards should be implemented, according to Singapore Law Watch. Responses were due mid-April and to our knowledge the feedback has not been published.
- In mid-2016, the SGX signed a memorandum of understanding with China Construction Bank to collaborate in bringing Chinese companies to list in Singapore, according to the Singapore Business Review.