Back in 1992, before I went to Oxford on a local bank’s scholarship, I was lucky enough to have saved up enough NS allowance to fly to London on Singapore Airlines C6L . Besides a discounted student fare, my trip was also subsidised by the courier “work” I was entrusted with on both ways of the journey. I was not being entrepreneurial but doing so out of necessity. After all, unlike the auspicious exchange rate of $1.68 to the pound now, costs in London were marked at more than 2.5 times the current rate.
For first-time visitors to London, it is easy to be in awe of the trappings of the British Empire’s past glory, charmed by then princess of hearts, Diana, and be wowed by the pomp and pageantry of its royalty, one of which was the Changing of the Guard, the ceremony where soldiers of the Household Division — with their big furry hats and rifles with bayonets affixed — hand over their sentry duties to another detail, accompanied by the marching band.
The daily ceremony, which is free to watch, draws endless throngs of gawking tourists, including travellers from all parts of the Commonwealth as well as hordes of Americans, who are tingled with excitement over English accents, the Royal Family and the hottest gossip about them in the local rags. Without the iPhones and Samsung of today, I struggled to get good pictures, capturing instead the rear end of horses going about their business while ferrying the soldiers from the barracks.
When I finally made it to university in 1993, I helped an old lady in her 80s pick up fruit scattering from a broken grocery bag. “Young man, you speak good English. Where are you from?” she asked as we made small talk. Upon discovery of my Singaporean heritage, she remarked: “Aren’t you proud to be part of the Empire?”
I did not burst her bubble. After all, she came from a generation of stoic Brits who survived the Battle of Britain and helped defeat both the Nazis and the Communists. Singapore benefitted much from the administrative system that the Empire left us. It was much better to be colonised by the British than by the Belgians who simply pillaged their colonies or cut off the hands of the natives.
Shedding baggages
Indeed, Singapore is a young country but we are independent. On May 15, Prime Minister Lee Hsien Loong, having led for the past two decades, will hand over to the 4G leadership led by PM-designate Lawrence Wong. Such is the measured and predictable pace of Singapore’s political leadership transition that telcos are already well into rolling out their 5G networks.
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Ever to see the negatives, the Western press had a field day regurgitating standard narratives from 1990 when Goh Chok Tong took over from Lee Kuan Yew, with added dynastic colour when PM Lee received the leadership baton in 2004.
Via his various social media platforms, Minister K Shanmugam rightly bristled at The Economist’s commentary on the handover, calling the article “sneering” Singapore “an instinct lodged deep in the unconscious of the British commentariat class”. After all, a people who were once under the subject of colonial masters are “now doing better … across the board”.
Mustering a rapid round of facts, Shanmugam points out that Wong will be Singapore’s fourth prime minister in 59 years, whereas Rishi Sunak is their fourth in 4.9 years, including 50 days in office for Liz Truss, who was at Oxford at the same time I was there and reading the same course.
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There was also Boris Johnson, who accepted holidays and renovations worth tens of thousands of pounds from donors and is walking scot-free. Admittedly, we have a former minister facing trial for purportedly receiving concert tickets.
But the biggest punch was how Singapore’s per capita GDP has risen 160 times from US$500 when we were a British colony to about US$80,000 ($108,904) today, ranking Singapore fifth globally on purchasing power parity terms, well ahead of the UK’s 28th.
While some foreign observers have described Shanmugam’s bat swing coming across as petulance, I disagree. The facts speak for themselves and Singaporeans should ultimately decide on the government and society we want and move at a pace which is in our best interest. That which has been proven a model of success is often anathema to the West which believes liberal and increasingly woke values, capitalism and democracy go completely hand in glove even as different shades apply among different Western societies, especially as they become increasingly polarised internally.
However, Singapore’s capital market bears some resemblance to that of the UK. This should give us some thought as to whether we should adopt a different path.
A chink in the amour
For centuries, London has had a storied history of capital formation and risk-taking. From financing explorations to the New World and Russian railroads, British jobbers from Cheapside traded all manner of commodities and financial paper. I have in my historical scrip collection a 200-year-old newsprint of prices from 1824.
A few of these key platforms have lost some of this “British-ness”: the London Metal Exchange, which dictates the world of precious and base metals, is now owned by Hong Kong Exchanges and Clearing; the Baltic Exchange, which indicates freight rates across the Seven Seas, is now owned by our own Singapore Exchange S68 Group. In derivatives, it is a case study of how LIFFE or the London International Financial Futures and Options Exchange lost the famous Battle of the Bund (German bond futures) in the 1990s to an upstart electronic exchange called Eurex in Frankfurt, debunking Germany’s image as an economic powerhouse but financial services dwarf.
Among the ways the UK undermined itself with Brexit in 2016, financial institutions based in London are required to find a European home in either Paris, Amsterdam or Frankfurt. That self-inflicted wound is today dwarfed by increasingly shrill calls of how the City, which is still a huge base for managing emerging market assets, has been left behind by New York and Japan even if those markets are still more domestic-focused in their asset allocation.
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Of more significance are the criticisms and laments by The Financial Times and The Economist on the demise of London’s stock markets. No longer the equity capital of the world for IPOs — a title long lost to New York and previously held by Hong Kong in the go-go years. Today, London has been criticised for having few tech IPOs, including its own semiconductor unicorn Arm which was listed in the US instead. The benchmark FTSE 100 trades at a boring 10–11 times P/E but with a steady and decent dividend yield of 4%.
Has the London market lost the swashbuckling risk-taking days that funded privateers which sank the Spanish Armada and breached the Portuguese lines to reach Japan as described by the recent remake of James Carvell’s Shogun?
As a financial capital with vast amounts of international funds under management, have UK pension funds and investors become mere coupon clippers? Have they abandoned bubbly high-risk and high-volatility counters to the US markets? AIM, or the Alternative Investment Market, is even more anaemic on liquidity and secondary fundraising than our Catalist board when adjusted for market cap, which ironically used AIM as the model. Our equally steady and boring Straits Times Index (STI) trades at 11–13 times P/E and pays a slightly higher dividend yield than London. Indeed, shift the label about London to the Singapore stock market and the same questions apply.
Making our own luck
As Larry Fink of BlackRock wrote in his recent CEO letter, capital markets are key to addressing two of our biggest economic challenges. The first is to provide people with “a secure well-earned retirement” as people live longer. In his opinion, the capital markets can provide it, so long as governments and companies help people invest. The second challenge is in infrastructure and transition to a low-carbon future while achieving energy security. “Capital market can help meet twin goals of decarbonisation in an affordable way,” says Fink.
Established orthodoxy or at least the public narrative of how we have built our economy and financial centre is based on the fact that we have fair rules and fair play including free competition. Our over $5.4 trillion of assets managed out of Singapore includes decades of hard-earned money by the Monetary Authority of Singapore and the Economic Development Board promoting the free market credentials of Singapore and its stable political system that is too consistent to a fault for many Western commentators.
We have constructed a system that professionally manages our hard-earned savings set aside in our pension funds in CPF via GIC which takes the heat in returning the basic safe returns and a higher “risk-free” rate for years when interest rates were negligible.
Over $500 billion is well diversified for our safety but does not flow back into our marketplace to fuel domestic capital markets to reward entrepreneurship. To be fair, even for the portion that is investible by ourselves under the CPF Investment Scheme, many invest in overseas and insurance products offered by our banks and wealth advisers who may be incentivised to compete with their peers and come with fees to reward their distribution channels. Few like myself will invest our CPF funds in the STI ETF which provides a dollar-cost average return that is higher than the 4% offered by the CPF special account.
In recent years, our sovereign funds have created vehicles like 65 Equity Partners to support potential local unicorns in the private markets. This augments EDBI Investment, Heliconia and a few other funds that have traditionally been earlier-stage investors. Entrepreneurs complain that the discounted valuations we drive for local enterprises here are below what they can get from venture capitalists and private equity firms from Europe and the US, or even Japan. Perhaps, the risk of public money, coupled with a kiasu culture, hinders us. Or then again entrepreneurs always view the valuation of their business as higher than the investor.
Our region provides many examples of how catalytic liquidity is important, not just as capital for pre-IPO markets. Japan’s GPIF shift from 2014 shows how the return of local fund managers and retail investors to the market has attracted global investors seeking to join the party. Closer to home, we may not want to follow Malaysia whose sovereigns — including EPF, KWAP and other state institutions — are so dominant they are essential to getting domestic IPOs off the ground as well as holding up liquidity in the market. But Australia’s supranational funds that have a home bias or Thai institutions which are captive certainly offer a base that helps the market find its own feet. Our laws (again recently changed) require the setting up of some 1,400 family offices here to allocate at least 10% or $10 million of assets to local investments, whichever is lower. This leaves 90% slippage out to the rest of the world, excluding promiscuous local investors.
We have rightly preferred not to be too prescriptive in the past. But in an era of friend-shoring, high fences and small gardens, should we not try to create more of a virtuous cycle at home? Would the Changing of our Guard this year herald a new dawn if we start revisiting some sacred cows?
Chew Sutat retired from 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
