The cash equities business remains key to the Singapore Exchange S68 ’s (SGX) strategy, and the bourse’s leaders remain committed to growing it, says SGX Group CEO Loh Boon Chye.
Speaking at SGX’s 25th annual general meeting on Oct 10, Loh sought to assure shareholders that the stock market “remains high” on management’s agenda. “It is an important pillar of Singapore’s financial ecosystem. We’re hopeful that our cash equities business will improve when all quarters of the ecosystem rally together to structurally improve liquidity and trading.”
The Monetary Authority of Singapore (MAS) convened in August an equities market review group, which will propose ways to stem a series of delistings here and revive the listing venue.
One shareholder questioned how the review group might stimulate demand for cash equities, citing a point made in SGX Group chairman Koh Boon Hwee’s letter to shareholders in SGX’s latest annual report, released Sept 16.
Koh had said in his letter that previous attempts at addressing the issues of the stock market had been “incremental and focused on the supply side”. “We need to be more holistic in our approach, and more importantly, give equal emphasis to the demand side of the marketplace. It requires concerted effort from all quarters.”
Koh is among the 10 members of the review group, which also includes Lee Chuan Teck, chairman of EnterpriseSG; Chia Der Jiun, managing director of MAS; Temasek Holdings CEO Dilhan Pillay.
See also: ‘Evident’ that SGX cash equities business ‘needs more work’: SGX chairman
Hence, the shareholder also asked for Koh’s personal views on whether large institutional investors like Temasek and GIC should be called upon to invest in SGX-listed companies.
In response, Koh says the SGX cash equities market “is basically a market”. “We can neither create supply nor can we create demand,” he adds.
Instead, what the market needs in order to become more “vibrant” is to develop an “infrastructural, institutional ecosystem” with buyers and sellers, says Koh, who was appointed at the start of 2023. “It needs to be institutional because that’s what usually leads to liquidity and price recovery in the market,” says Koh.
See also: MAS’s equities market review group holds first meeting, unveils 31 workstream members
Koh adds: “All of these issues that you have raised are being actively discussed… We don’t have a solution today. The review committee is still working.”
While the review will take up to 12 months, MAS says the review group and its two workstreams will announce their recommendations in phases, so that the proposed measures can be implemented as soon as possible.
The same shareholder later asked if SGX is ensuring its designated market-makers and brokerages focus on smaller-cap stocks to drive liquidity.
Loh says SGX’s market-making efforts are “not entirely geared towards just the index stocks”. “The whole purpose is to obviously look beyond the index stocks, and today they cover up to about 250 stocks.”
This comes with encouraging research beyond the popular index constituents, in order to build a following, adds Loh. “We do periodically review those with the market-makers, and we adjust based on where the volumes are lacking and where we like to see a bit more trading liquidity.”
‘Significant growth’ in securities trading last month
SGX saw “significant growth” in the trading of its securities in September with total market turnover value up 75% y-o-y and 5.6% m-o-m to $30.38 billion. According to data released on Oct 9, securities daily average value (SDAV) was up by 67% y-o-y and 5.6% m-o-m to $1.45 billion. Both measures were at their highest since May 2022.
The increase in trading activity was perhaps partly due to the US Federal Reserve’s highly anticipated half-percentage point rate cut on Sept 18.
At the same time, September saw two more delistings, bringing SGX’s total number of listed securities to 620, down from 622 in August and from 635 in September 2023.
The Mainboard had 413 listed securities, down from August’s 415 and 429 in September last year, while the Catalist board remained unchanged m-o-m with 207 listings. September 2023 had 206 listings on SGX’s Catalist board.
Letters to shareholders
Prior to the AGM, Koh’s letter to shareholders was issued separately from Loh’s in SGX’s FY2024 annual report, a first since FY2010.
Koh said in his letter that it is “evident” that SGX’s cash equities business “needs more work”. “Some may argue that the stock market is only one aspect of our financial ecosystem, but it is more like a pillar. And we should recognise that if this one pillar were to falter, the whole is put at risk.”
The success of the stock market is dependent on multiple factors, said Koh, “some of which are outside the control of SGX Group”. “Our purpose is to serve as a trusted and efficient marketplace. We have worked hard to put in place an accessible venue that facilitates the exchange of capital and ideas. But the venue itself cannot create supply or demand. Other factors are necessary to bring about the vibrancy that is needed.”
Koh said Singapore market players “must learn to accept market volatility and the occasional challenges that come with it”. “With volatility comes active trading. And active trading in turn enhances liquidity. A highly liquid market drives valuation, paving the way for IPOs. These things are all interlinked. But to achieve this, we require greater diversity in the demand side of the equation.”
This includes fostering an institutional asset-management ecosystem that includes the local stock market, Koh added. “Without domestic institutional demand, we cannot expect to see foreign institutional demand. Only when we support our own stock market, can we attract foreign companies to list here. After all, if we do not support our own market, why should we expect others to do so?”
Loh’s letter, meanwhile, noted that overall volumes for SGX’s cash equities market were subdued in FY2024 ended June 30.
“While we saw signs of volumes improving in the second half of the financial year, more needs to be done to structurally enhance liquidity and listings. A more holistic approach with efforts from all stakeholders is required for real change to take place,” wrote Loh.
Loh added: “We will work closely with the review group set up by the Monetary Authority of Singapore and our stakeholders, alongside our efforts in product development, research and education, issuer and investor outreach and regional partnerships.”
