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Becoming a global technology hub

Singapore has factors going for it - government funding, infrastructure support and talent. Being a tech hub is attainable if all parts of the ecosystem pull the same way.

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SGX is working with agencies like the Info-communications Media Development Authority (IMDA) and A*Star to deepen the technology ecosystem in Singapore.

AS technological innovation becomes critical to economic and social success, many countries, including Singapore, are vying to be recognised as global technology hubs.

Considering that it took 50 years to build Silicon Valley, Singapore has made significant strides in building an ecosystem that has overtaken the US tech mecca to become the world's No. 1 for startup talent.

Besides being the regional home to tech giants like Google, Facebook and LinkedIn, Singapore is one of the largest producers of startups in South-east Asia; last month, the Alibaba Group joined the big names with its announcement that it will set up one of its seven global research and development centres in Singapore.

Singapore has many winning factors - such as government funding, infrastructure support and talent - which have contributed to the growth of our tech and startup ecosystem. But as a country, we can do more.

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WINDS OF CHANGE

Winds in the technology world are starting to change. Chinese companies like the Alibaba Group and Tencent Holdings have joined the multi-billion tech club, which once used to have only American names.

At present though, the US remains the biggest and deepest market for technology companies and startups, and will continue to be so for some time. In Asia, there is no stock exchange that holds a strong leadership position in technology initial public offerings (IPOs).

To become a global technology hub, Singapore needs more robust funding platforms that will finance the future needs of Asia's startups, small and medium enterprises (SMEs) and new-generation companies. With a third of this year's unicorns hailing from Asia, the centre of gravity for tech will arguably soon shift east.

As the international gateway to Asia, Singapore Exchange (SGX) is well-positioned to become a listing venue of choice for both Asian and global tech IPOs. It is an ambitious but achievable task, if all the wheels in the ecosystem are set in motion.

There are several areas that have started to gain momentum, and the right impetus can lead to transformational change.

First, SGX's technology sector is bigger than most think and has much room to grow. Having gone through several tech cycles, technology companies in Singapore have come full circle - the era of semiconductors and contract manufacturers has been rejuvenated as these companies capitalise on new technology trends.

Technology and telecommunications is now one of the largest segments on SGX, with close to 80 companies and a combined market capitalisation of US$62 billion, comparable with our REIT sector.

Looking purely at IT stocks, this sector has also chalked up the strongest gains in Singapore in the year to date (YTD), with YTD market capitalisation growing by two-thirds. The 10 biggest IT stocks by market capitalisation have averaged a 90 per cent price gain this year so far.

There is a strong investor appetite for tech stocks in Singapore, and the savvy have begun to benefit from it. As technology becomes more dominant and widespread, analysts anticipate that tech stocks will become a core part of an investor's portfolio.

We expect more new and disruptive technology companies to be born and based out of Singapore. Located on the doorstep of fast-growing South-east Asia, we stand to benefit from the region's tech success stories and its rising population, which will eventually consume and drive the development of future technology.

Existing "old-economy" firms will evolve into "new-economy" ones as they leverage digitalisation, artificial intelligence, Internet of Things and big data.

Our homegrown institutional investors and sovereign wealth funds, as well as local retail investors, should capitalise on present opportunities when valuations are attractive. Greater support will create a home-field effect, and lead to more wins for all.

THE EAST-WEST CORRIDOR

Secondly, Singapore does not need a large hinterland to have scale and connectivity.

Take for instance, SGX's recent collaboration agreement with Nasdaq. The partnership creates an east-west corridor that gives both exchanges a distinct, first-mover advantage in their respective parts of the world. Fast-growing Asian companies looking to tap the capital markets can choose to list on SGX on Asian home ground, and embark on a listing on Nasdaq as they expand their business globally.

A tech company listed on an Asian exchange does not make it any less than one listed on a US bourse. Asian companies list on an international exchange in Asia because its investors may better appreciate their growth story. On the other side of the coin, US companies may find Singapore attractive, given our global connectivity and ready access to more than 620 million potential consumers in South-east Asia.

The reality is that growing Asian companies may find it a challenge to garner investors' attention in a big market like the US. The SGX-Nasdaq collaboration serves to bridge the two markets, as the world becomes more connected and inter-related.

In fact, Singapore is one of six Asian countries, and the only Asean country, in the top 20 country list of US portfolio of foreign securities. Last year, US investors held US$100 billion worth of Singapore equities, compared to US$118 billion held at the Hong Kong Stock Exchange.

US investors also held US$15 billion in Singapore debt securities, more than double that of Hong Kong debt securities.

US holdings of Singapore's securities market have been on the uptrend in recent years. This is an opportunity that Singapore should leverage to attract more US technology fund managers and investors to set up operations here.

Doing so will play to Singapore's strengths as a South-east Asian tech hub, while generating more investment flows into our Singapore securities market.

Singapore plays a key role as an offshore hub in facilitating capital and deal flows. With China emerging as a tech powerhouse, we can also support China's ambition to liberalise its markets. Collaborations with Chinese exchanges in Asia like the Shenzhen Stock Exchange is another route that could potentially have mutually-beneficial multiplier effects.

Thirdly, as the global funding landscape shifts, Singapore needs to create a seamless pathway between private and public fundraising channels. More funds are being invested into venture capital and private equity funds in Singapore, as private investors see the immense growth potential of Asian tech startups. The rapid increase in the number and size of private deals funded in Singapore fuels SGX's broader drive to strengthen the road to listing and ensure that every company, at each stage of their growth, has access to capital that is efficient, cost-effective and sustainable.

Hence, we are working with like-minded organisations and government agencies like the Info-communications Media Development Authority (IMDA) and A*Star to deepen the technology ecosystem in Singapore and improve access to capital for companies that may not be ready for a public listing.

We are already exploring the feasibility of developing a fully integrated private market in Singapore.

Valuation, which is determined by the marketplace, is a key consideration for technology companies seeking to list. To foster deeper investor appreciation, and in turn valuations of startups, the worlds of finance and technology need to be bridged through education and collaboration. This role is played not only by the exchange, incubators, accelerators, venture capital and private equity investors, but also investment banks, brokerage firms, equity analysts as well as institutional and retail investors.

Singapore has many things going for us. We are all part of the blueprint of success. Counter-intuitively, perhaps one of our biggest advantages is our size. As a small nation that punches well above its weight, it is not a gargantuan task for all segments of the ecosystem to take concerted efforts to develop Singapore into a truly global technology hub. When everyone is committed to the same end goal, our ambitions can become reality.

  • The writer is chief executive officer of the Singapore Exchange.
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