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The "hollowing out'' of the market

I recently wrote a commentary on the "hollowing out'' of the Singapore stock market caused by the departure of good quality companies that have decided against remaining listed (see "Latest SGX 'hollowing out' is different - and troubling'' BT Hock Lock Siew 13 May). In the article I mentioned named such as Tigerair, CM Pacific, Eu Yan Sang and OSIM as companies that are either privatising or have already done so over the past year but a dealer friend then sent me what appears to be quite a comprehensive list that included Zagro, Interplex, NOL, Lantro, Saizen, GMG Global, Biosensor, China Dairy and several others. It then occured to me to see if the same exodus was present in other markets. I elected to do some digging with respect to Hong Kong, mainly because the downturn of the past 18 months or so was caused by worries of a China hard landing, the bursting of a hugely over-leveraged bubble in its equity market and the country's decision last August to devalue its currency.

A good source of delisting/privatisation information on the Hong Kong market is The Webb-Site, run by corporate governance activist David Webb. There is on this site a list of 445 stocks that have either been delisted or moved from HK's second tier board known as GEMS to its main board since 1999. I ploughed through the names  and confined myself to only 2015 and 2016, unearthing 10 companies that have been delisted in the past 17 months such as Dorsett Hospitality International after being listed for 5 years, econtext Asia after 1.4 years,  Hunan Nonferrous Metals after almost 9 years and Melco Crown Entertainment after about 3.5 years. These presumably surrendered their listing status because of the same reasons as companies here - onerous listing requirements and illiquid trading which add up to the costs of remaining listed outweighing the benefits.

However, included in the 10 were a few interesting names. One was China Metal Reycling which if memory serves me right, was the subject of a report by short seller Glaucus Research. Turns out that the company was forcibly delisted by the HK Exchange in February this year after being listed for 3.6 years because it obtained its listing fraudulently via overstated accounts. Hats off to the short seller in this case for getting it right, it only goes to reinforce what I've always said, which is that there's a place for everyone in the market, short sellers included. 

Two other interesting examples were those involving investment holding firm Pyxis Group and Sanmexia Tianyuan Aluminium, which had their shares cancelled by the HK Ex because they could not come up with viable businesses after years of being suspended. In Pyxis's case, the suspension was 3 years before the company was delisted whilst Sanmexia's suspension lasted just under 5 years. Clearly, HK's patience with companies with no ongoing business is less than SGX's since the latter prefers to try and salvage something for shareholders of suspended companies, no matter how long it takes.

Among the remaining names was Sing Pao Media Enterprises, which went bust, was liquidated and exited the exchange in August last year.

Short of doing a comparison across markets over several years, I'm hesitant to draw any firm conclusions from the above. All I can say is that other markets such as HK have experienced some departures since the start of 2015, which suggests that SGX is not alone in having to deal with periodic exits. Whether or not the problem is greater here than it is elsewhere would require much more research than I can perform and must therefore remain an open question for now.