‘No better player’ than GIC to help revitalise fortunes of Singapore stock market: observers

AS DEBATE over the need for a revitalisation of the Singapore Exchange (SGX) heats up, most market watchers that spoke to The Business Times believe it is time to “think out of the box”, and seriously consider the use of GIC funds for investments in the local stock market.

Some analysts said a small portion of the sovereign wealth fund could be allocated to the local bourse to boost valuations and investor confidence, although at least one felt that there was no need to do so. 

To be clear, it is not the first time that market observers have called for funds from GIC – the Singapore sovereign wealth fund that manages the country’s foreign reserves – to be used to lift the stock market’s flagging fortunes.

The Singapore Business Federation raised the topic in 2016, while The Society of Remisiers (Singapore) suggested it earlier this year. 

The conversation over whether GIC should expand its portfolio to include the Singapore market resurfaced again after Financial Times last week reported that SGX is reviewing a document by the Singapore Venture and Private Capital Association that puts forth several proposals to boost the local bourse. 

According to the report, one of the proposals is to allow pension and sovereign money to be invested in the stock market.

Two of Singapore’s investment entities – GIC and Temasek – invest their funds into markets, but in different portfolios.

While Temasek’s portfolio includes local listed companies, GIC invests only internationally outside Singapore. This is in line with its mandate to preserve and enhance the international purchasing power of the Singapore reserves it manages over the long term.

One of the sources of funds managed by GIC is the proceeds from the Special Singapore Government Securities, in which CPF (Central Provident Fund) monies are invested.

Why reconsider now?

RHB analyst Vijay Natarajan said that while Singapore’s gross domestic product has grown “significantly better” than other markets since GIC was set up in 1981, the local stock market has not grown in the same size and vibrancy in the same period.

“And that is where I think the opportunity comes, because GIC knows this market better,” said Natarajan.

S Nallakaruppan, president of The Society of Remisiers (Singapore), noted that many local companies were trading below book value, even with Temasek’s investments in the local bourse.

Pointing out how the Japanese government’s intervention had helped to improve its market, Nallakaruppan said that as one of the more undervalued markets globally, it was “long overdue” for the Singapore government to step in as well.

However, Cheng Chye Hsern, who heads the investment team at wealth management company Providend, felt that it “does not make sense” for GIC to step in given that Temasek is already doing so.

Moreover, doing so would run counter to GIC’s mandate, which is to ensure Singapore’s international purchasing power over the long term.

“It cannot be a case of ‘let’s just put the money in and push up the value’,” he said. Instead, the authorities should look to attract “more exciting” companies to list on the SGX to develop a more vibrant market, he added.

This would lead not just sovereign wealth funds, but also fund managers, to consider investing in Singapore as they can now have access to companies that are not available anywhere else globally, said Cheng.

However, Paul Chew, head of research at Phillip Securities, felt that GIC’s entry would help to “inject new money” into the market.

On a strategic level, if GIC were to invest in local companies, the valuations of companies can also rise to better reflect the fundamentals of the company, he said.

In turn, these companies can then become acquirers of other businesses, further adding value to the Singapore market. Otherwise, these companies become targets themselves, and investors lose out on the potential value appreciation of the company, he added.

Moving the needle with GIC funds

Natarajan said that the aim of investing GIC funds should be to unlock the value in the market and boost long-term returns, as well as inject liquidity and confidence into the market.

He suggested that investing a low, single-digit percentage of GIC’s portfolio funds locally could “sizeably move the needle” of the SGX.

Last year, GIC invested 20 to 30 per cent of its portfolio in developed market equities. Allocating a portion of this towards Singapore should not disrupt its overall portfolio and adhere to GIC’s approach to maintaining a diverse investment approach, he added.

To ensure liquidity and holistic growth across the Singapore market, GIC can create several funds across various sectors such as real estate, technology and renewable energy, said Natarajan. These funds should be actively invested with clear objectives, such as unlocking the value of the sector.

To “jump-start” the market, Nallakaruppan suggested that GIC allocate 10 per cent of its portfolio to Singapore equities. In comparison, 54 per cent of Temasek’s portfolio is in companies based here. Some 28 per cent of Temasek’s portfolio, in terms of underlying assets, is also based in Singapore. (see amendment note)

GIC can start off by investing in the FTSE STI Index stocks before broadening its investments to mid and small-cap stocks, he added.

Chew said that an exchange-traded Fund (ETF) focused on small or mid-cap companies that meet environmental, social and governance criteria could be set up as part of a public-private partnership.

Having a sovereign wealth fund invest in an ETF, rather than individual stocks, would help to reduce controversy over the choice of companies it chooses to invest in, he said.

Market watchers also disagreed that it could be politically sensitive to invest GIC funds in the local market, given that part of the funds are from the CPF.

They noted that GIC is already investing funds, albeit in overseas markets. So long as the sovereign wealth fund adopted basic investment principles and invested in worthy companies, there would not be a conflict of interest, they said.

Investing in Singapore would also reduce investment risks as a local sovereign wealth fund such as GIC would know the landscape here better, said Chew.

Natarajan added: “There is no better player to unlock the value of this market than a local sovereign fund compared to any other players.”

Amendment note: The article had earlier said that Temasek allocates 28 per cent of its portfolio to Singapore. The article has been amended to clarify that the figure refers to the exposure of Temasek’s portfolio by underlying assets to Singapore. The article has also been updated to reflect Temasek’s portfolio in terms of companies based in Singapore.