Last week, I made my first visit to Sydney in more than a decade. While the main reason was to attend an impact investment summit, I was equally curious to see what the economic and financial hub of Down Under would look like, especially after China’s curbs on wine, beef, iron and coal imports, no thanks to Australia’s over-eagerness to form the “A” in the three-way security pact Aukus.
For decades, Australia, with its famed Goldilocks economy powered by bountiful reserves of commodities, is a favourite investment destination for Singapore. Just look at our listed companies on the Singapore Exchange S68 (SGX) — from Singapore Telecommunications Z77 (Singtel Z74 ) and Keppel Infrastructure Trust A7RU to Frasers Logistics Commercial Trust and SLB Development1J0 . Plenty of individuals and private investments have similarly made big bets there too.
Markets and economies aside, the ties between countries have been shaped for decades by the hallowed ranks of Colombo Plan scholars who have taken up key roles in Singapore’s government and business. They were followed by the legions of younger graduates of Monash, Melbourne Sydney and even The University of Western Australia over at Perth, who take on the mantle of bridging the Australian dream to be part of Asia through Singapore.
It’s only natural
My 1991 visit to Australia was especially memorable. I was on a one-night stopover from Wellington back to Singapore and I was delighted to book cheap accommodation at a backpackers’ lodge: A$6, including transport to and from the airport. It was only after I returned from an amazing night out at the Opera House, that I was told that my bed was temporarily occupied, but that the occupants would be done in another 30 minutes. I was glad I was already planning to use my own sleeping bag anyway.
Plenty of sights and sounds from that 1991 visit left an impression. I emerged unscathed from Kings Cross, a traditional lair of the mob and prostitutes made famous by the TV series, Underbelly. I booked a morning cruise setting off from Darling Harbour for just A$12, with my eyes on the buffet spread as part of the cruise which could be my breakfast, lunch and maybe dinner before my flight out. I was shocked to find out that I was the only passenger. Even so, the boat sailed, along with its full spread of food, and all five crew, because “it was advertised” and so long as one person books the trip, the deal is honoured. Years later when I returned, the company that ran this cruise was out of business.
Some two decades later, I found myself visiting Australia more often, especially between 2011 and 2012, when the exchange embarked on its audacious US$8 billion merger with its Australian counterpart, the Australian Securities Exchange (ASX). The deal was eventually scuttled by Australian politicians. Leading the transaction at the Singapore end, I learnt about how similar and not the same the respective markets were, and how it would have been complementary for both in combination. It certainly was a win-win deal for shareholders then. The deal won the support of the Australian Financial Market Association and even cleared the Foreign Investment Review Board.
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The deal too had to be given the go-ahead from Australia’s parliament. The then Labour government, under Julia Gillard, was barely hanging on with a thin margin and the right-wing parties would not miss any chance to topple her if the motion failed. Wayne Swan, the Treasurer then, cited national security as the reason why he felt it was a “no-brainer” to block the deal. It was patently obvious that the real reason was the underlying politics fostered by a culture of insularity and protection among its different stakeholders, even if Australia is far from the White Australia world decades ago.
It is interesting to observe that when Optus — a subsidiary of Singtel — got into a pickle over cyber security last year, it unleashed a storm of media outrage and political grandstanding which only simmered down after several other local Australian companies got into similar troubles.
While Singapore is not China and our companies have fewer national security concerns generally when investing Down Under, there is no doubt a UK and US preference is prevalent.
In meetings in Canberra back in 2012, it was clear that if ASX’s merger partner was from the West, it may have been an easier sell to across the crowded parliamentary house of Aussie politicians from mainstream to Pauline Hanson. That is changing.
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Something so strong
Back in 2011, the thesis of Project Avatar — as the merger of ASX and SGX was codenamed — was predicated on the complementary nature of both businesses. ASX’s futures were the most developed (domestic) interest rate derivative market in Asia which attracted US and European proprietary trading groups (PTG) or what the media would like to label as high-frequency traders. Resource-rich Australia has plenty of iron ore waiting to be unearthed while SGX boasts unparalleled equity index derivatives of this same commodity from China to India. SGX was also expanding into other commodities and forex, augmented by Singapore trumping Tokyo to be the world’s third-largest forex centre by then.
Australia, home to more than 2,000 listed companies (97% domestic), has an active ASX200 which represented over 90% of daily liquidity plus a long tail of thinly-traded stocks including early-stage mining plays, and a random collection of Israeli and Southeast Asian (including Singapore) small and microcaps. These counters typically raised day-one capital for a princely 6% fee charged by the broker or banker and suffered illiquidity and anonymity for the most part with no research coverage. The cheap and cheery registration systems for IPOs attracted even Chinese companies — although that has gone out of fashion.
On the other hand, the 30 component stocks of SGX’s Straits Times Index (STI) represented around two-thirds of daily turnover, leaving some extra for the rest of the 670 stocks of so. A key difference was that around half of SGX-listed companies by market capitalisation were international or pan-Asian. Singapore had over US$2 trillion ($2.66 trillion) of international capital managed here, including those under our highly-promiscuous domestic institutions investing everywhere.
The Australians, by contrast, were generating new inflow in their capital market as the huge and growing superannuation funds, with hundreds of billions of dollars under management, were almost entirely constrained to investing locally under their mandates. Part of the thesis was for Singapore to get a good chunk of that — since our own investors including our sovereign funds do not actually prefer our market with regular liquidity — something that even Malaysia’s Employee Provident Fund, Kumpulan Wang Persaraan (Diperbadankan), and Khazanah Nasional do regularly.
We used to joke that the composition of the two markets is similar. The anchors of the ASX include three banks: National Australia Bank; Westpac Banking Corp, and Commonwealth Bank; a telco Telstra Corp and a couple of commodities giants, BHP Group and Rio Tinto; and a few other consumer companies such as Wesfarmers, Aristocrat Leisure and Lottery Corp. This mix is not a lot different to Singapore’s DBS Group Holdings, Oversea-Chinese Banking Corp, United Overseas Bank, plus Wilmar International, Olam International VC2 , and also the Jardine family. These companies pretty much represented what Singapore is: Stable, some say boring, but reliable and sustainable income generators. If an investor is looking for high growth, higher multiples, and trading opportunities with big volatile swings, he should consider Nasdaq and maybe the China and Hong Kong markets.
This same issue, or gap, was levelled recently by the usual annual British self-recriminations on how London has been eclipsed long ago in the age of super tech IPOs, even though the FTSE 100 — as boring as the ASX200 and the STI — has been the best-performing index over the pandemic and have made new highs (adjusted for currency in the case of STI in SGD).
Looking back at the missed opportunity a decade ago, both capital markets look similar and have performed well in total returns including steady returns, and low volatility. The stocks leading the indices have largely remained the same, and domestic investors and pension funds have been rewarded for the steady returns.
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SGX, which was sent back home by Aussie politicians in 2012, has been spurred on following the episode to transform its derivative market even more internationally and across multiple asset classes. ASX would have been able to internationalise through SGX, which by bulking up as a business, its marketplace could have benefited potentially from the flow of super funds north. Then again, Australians could have also just stayed put and supported their own markets and Singaporeans still continue to invest outside at the detriment of local markets.
Likewise, as Singapore has physically and economically transformed in the last decade, Sydney looks remarkably similar, both in infrastructure and business. The difference in the buildings that dot the landscape, however, is that now a Bank of China building has risen up beyond Pyrmont Bridge in between a triangle of the big three local banks. Mandarin is heard from the docks to Sydney’s Chifley Square central business district. The new pinnacle in its skyline is Crown Casino of course — where a lot of money still flows through as well as the sound of “gan bei” between clinks, much like Marina Bay Sands in the 2010s.
Don’t dream it’s over
For the market investor, every weekend of late sends a bit of anxiety. Last week, it was Deutsche Bank. In thin pre-market trading, the illiquid and opaque world of its credit default swaps started falling — alongside its stock which fell last Friday by up to 15% — but recovered since. Hedge funds continue to scour weak links to create a bit of panic. The banking stocks in Singapore and Australia stayed resilient and secure in their domestic dominance for retail and commercial deposits.
Unfortunately, the geopolitical news flow has only gotten worse. President Emmanuel Marcon’s retirement age extension has started another spring of discontent in France, spooking King Charles III to postpone his visit. Across the Atlantic, Donald Trump is “coincidentally” holding a rally at the Texan town of Waco, where, 30 years earlier, 82 cult members under David Koresh died after a 51-day siege by the FBI.
However, taking a leaf out of one of Australian music’s greatest hits, Crowded House’s Don’t dream it’s over, which actually postulates overcoming the present:
“They come, they come
To build a wall between us
We know they won’t win.”
By sticking to economic mutual interest, coupled with personal and cultural ties that bind for generations, mutually stable Australian and Singapore markets as well as societies may yet thrive in the ensuring global storm. As China re-emerges from Covid-imposed isolation and temporarily forgives (but does not forget) the last Australian government’s foreign policy transgressions, wine and capital will continue to flow.
Chew Sutat retired from the Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
