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Lack of confidence is market's biggest structural problem
A couple of weeks ago, the Small and Middle Capitalisation Companies Association (SMCCA) which has 30 members released a report in which it painted a bleak outlook for the local stock market and recommended that companies look elsewhere if they want to raise capital. The main reason for this is that there are deep, structural problems with the local stock market that has rendered it an unexciting place for corporate activity.
I'm not sure if I agree with some of the association's reasoning but I do agree that there are very pressing problems that need addressing. Whether or not companies should look beyond SGX when planning their IPOs is their perogative - personally I think they shouldn't - but to me the significance of the episode is that an association which apparently represents the majority of Singaporean listed and unlisted companies believes that the market is in dire need of revival, an observation which gels with claims made by the Society of Remisiers and is also borne out by the liquidity numbers.
As I noted in a Hock Lock Siew column this week which discussed the new 100-share board lot, retail investors will trade if they a) believe they can make money; b) believe the system will look after their interests and c) are offered good quality companies with attractive growth prospects. All three are not present in sufficient measure to enable a thriving retail presence. The reasons for this are complex, one of which is the penny stock crash of Oct 2013 which had painful direct and indirect consequences on retail players.
This loss of faith/belief/confidence is therefore the single most important structural issue confronting those whose job is try and engineer a turnaround. How to restore it on all fronts should be a priority since without confidence or belief, there really can be no market.The SMCCA's claims should therefore not be dismissed lightly.