As Singapore Tackles Market Liquidity, EquitiesFirst Offers Bridge for Investors

The stark contrast between Singapore and Hong Kong’s financial markets tells a story of unrealized potential. While Hong Kong’s stock exchange processes monthly trading volumes of 3 trillion Hong Kong dollars ($385.6 billion), Singapore — despite its larger economy and stronger foreign investment flows — recorded turnover of $22.8 billion Singapore dollars ($17.7 billion) in August 2024.

This figure, though representing a two-and-a-half year high for the Singapore Exchange, highlights the significant liquidity gap between these competing financial hubs.

But the performance metrics present a complex picture. Singapore’s Straits Times Index has shown remarkable stability, posting annual gains since 2021 with only a minor 0.34% decline in 2023. This resilience contrasts sharply with Hong Kong’s Hang Seng Index, which has suffered through four consecutive years of losses, including multiple years of double-digit declines between 2021 and 2023. Yet paradoxically, Singapore’s total market capitalization of SG$798.55 billion is roughly one-seventh the size of Hong Kong’s HK$32.9 trillion market.

For investors eyeing the potential of Singapore’s stock market revival, equities-backed financing provider EquitiesFirst offers a potential solution to the liquidity challenges that have long characterized the exchange. Through its equity-based lending model, the firm enables investors to access capital while maintaining long-term market positions, a particularly valuable option in a market where careful positioning could yield significant returns as reforms take hold.

The Liquidity Challenge

Market liquidity remains a persistent challenge. Singapore’s turnover velocity stood at just 36% in 2023, trailing Hong Kong’s 57% and Japan’s 104%. This liquidity gap has contributed to a challenging environment where 67% of SGX stocks trade below book value, though this figure partly reflects the impact of high interest rates on real estate investment trusts.

“More needs to be done to structurally enhance liquidity and listings,” acknowledged SGX CEO Loh Boon Chye. In a letter to shareholders, he called for “a more holistic approach with efforts from all stakeholders.”

This candid assessment comes as Singapore grapples with its economic position in the Association of Southeast Asian Nations region, where Indonesia has claimed the title of Southeast Asia’s largest stock exchange.

The exodus of Singapore’s technology companies to U.S. markets, following super-app Grab’s 2021 Nasdaq debut, has added another layer of complexity to the market’s development. However, this strategy has often backfired: Southeast Asian companies listed on Nasdaq have experienced a median share price decline of 80% post-initial public offering, suggesting that geographic and cultural distance creates significant barriers to success in American markets.

Reform Initiatives and Alternative Financing

Singapore’s government has recently signaled its determination to address these issues. In September 2024, Second Minister for Finance Chee Hong Tat announced plans for “bold changes” to regulatory structures. These reforms aim to position Singapore as the premier listing destination within ASEAN, which is projected to become the world’s fourth-largest economy by 2030.

The reform agenda targets outdated rules, listing costs, and market-making incentives. Implementation could occur within a 12-month window, building upon existing infrastructure like the ASEAN Trading Link, which has connected the exchanges of Singapore, Malaysia, and Thailand since 2012.

And Japan’s recent market reforms offer encouraging precedents. Their initiatives successfully reduced the proportion of stocks trading below book value from 50% to 36%.

For SGX Group Chairman Koh Boon Hwee, the impetus to take strong action to revitalize the market is clear.

“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.”

“We must learn to accept market volatility and the occasional challenges that come with it,” he continued, adding that “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.”

For investors looking to participate in Singapore’s market transformation, alternative financing solutions could play a crucial role. Equities-backed financing providers like EquitiesFirst offer options for investors to access capital while maintaining their equity positions. This approach could prove particularly valuable given Singapore’s current market dynamics, where thinly-traded stocks and potential volatility during the reform period might otherwise deter investment.

The company’s ability to work with less liquid stocks and provide long-term financing arrangements could help investors navigate market conditions while maintaining or increasing their positions. This financing model enables shareholders to retain exposure to their equity assets while accessing capital, potentially contributing to market liquidity and supporting long-term investment strategies.

Singapore’s market reforms and enhanced trading volumes suggest gathering momentum. With the government committed to fostering an institutional asset-management ecosystem and implementing comprehensive market reforms, the current environment, particularly the high proportion of stocks trading below book value, could present significant opportunities for investors as these initiatives take hold and interest rates potentially moderate.