Singapore appears to be benefitting from China’s crackdown on Hong Kong. Singapore is experiencing “record amounts of private wealth and capital”, Economist Intelligence (EIU) says, owing to Singapore’s “stability, business-friendly and low-tax market regime.”
That said, compared to Singapore’s private markets, the performance of the local bourse has “paled in comparison”.
The paper notes that the performance of Singapore’s stock market has “underperformed” with low volumes and opaque corporate disclosure practices.
“The bourse is dominated by businesses owned by Temasek, Singapore’s state-owned investment heavyweight, and asset-heavy companies such as real estate investment trusts (REITs) that have suffered from higher interest rates in recent years,” reads the report.
“Despite healthy corporate earnings, the market’s P/E ratio has declined, possibly indicating cautious investor sentiment,” it adds.
The exchange, which has been experiencing more delistings than listings of late, is expected to see continued slowdown in IPO activity in 2H2024, driven by declining REIT valuations. High-growth companies supported by private equity and venture capital may also be reluctant to go public amid a high-interest-rate environment.
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However, the review group established by the Monetary Authority of Singapore (MAS) in August may see a recovery for Singapore’s public market.
That said, even if the reforms proposed go through, EIU sees that local funds and asset managers may need a more “holistic approach” to trade more actively. New corporate governance and disclosure rules may also be needed to boost long-term investor confidence.
Meanwhile, Hong Kong is experiencing “significant decline” in its position as a leading financial centre, as its stock market plummets and economic growth weakens, EIU says. This is a result of China’s strict crackdowns and extended trade war with the US.
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This is worsened by “economic woes” faced by China, further undermining confidence in Hong Kong’s market, EIU notes. The amount of money from initial public offerings (IPOs) has decreased to a 20-year low, with several companies scrapping their plans to list in view of weak valuations and poor economic outlook.
The Hong Kong government has established a Task Force on Enhancing Stock Market Liquidity. However, EIU believes that Hong Kong will be increasingly reliant on the Chinese market, with its status as a global financial centre “severely” diminishing in the next few years.
The decline in Hong Kong markets has solidified Singapore’s position as an “international financial centre”, EIU notes, with Singapore primed to attract foreign investment outflows from Hong Kong.
“Hong Kong will see a further exodus of investors, weakening its position as a major global financial centre,” says EIU. “We believe that many companies will relocate to Singapore or to other growing financial centres across the region.”
The reforms introduced by Singapore’s review group will also make the city-state an attractive destination for long-term investors, it adds.
Beyond this, EIU believes that Japan and India’s capital markets will continue to flourish in the next few years. Japan and India continue to benefit from the China Plus One strategy adopted by investors looking to hedge the increasing risk in China by diversifying their portfolios to other Asian markets. This is of particular benefit to Japan which boasts a sound regulatory framework and well-capitalised commercial banks, bolstered by low risks to financial stability.
Further to the report, EIU noted that the MSCI Emerging Market Index has increased India’s weighting to 18%, up from 8% in 2020, reflecting India’s “increased market capitalisation” and “rising confidence” amongst investors internationally.
Despite this, EIU recognises that Indian stocks have much higher price-to-earning (P/E) ratios in comparison to other countries in the region, threatening future performance. Additionally, Japan’s alliance with the US presents complications, especially considering the upcoming presidential elections.
