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OUTLOOK 2019

Wish for more things nice, not naughty, for Singapore market

More action needed to protect investors, stem corporate governance abuse; revisit dual-class shares and set up truly independent regulatory body

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Singapore

IT'S beginning to look a lot like Christmas, everywhere you go, but not for the Singapore stock market and its players.

Trade and currency wars, Brexit, and political tensions have sent the benchmark Straits Times Index (STI) tumbling from its year's high above 3,600 to hover slightly near 3,000 these days.

That's a far cry from analysts' predictions that the STI could end 2018 closer to 3,700 or even as high as 3,900. Looking ahead, DBS Equity Research thinks the STI could slip to 2,850 or in an extreme bear case scenario, sink to 2,600.

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Market voices on:

"The Singapore stock market urgently needs a tremendous boost of investor confidence and liquidity," S Nallakaruppan, an investment specialist, told The Business Times.

The veteran remisier, who has been actively urging authorities over the past years to do more to stimulate the local stock market, believes a robust investor participation in the market would ensure that the price discovery mechanism works efficiently.

"Presently, the severe lack of participation amongst a broad spectrum of investors has resulted in market prices being determined by a very limited pool of investors. This may not necessarily reflect the true market value of the company,'' he said.

"My wish for the Singapore capital market is to have a vibrant one where investors feel safe about their investments and are adequately protected against unscrupulous individuals," said Mr Nalla. "Also, justice levied in good speed to give a strong signal to investors that the authorities are on top of their game. Once market confidence is restored, liquidity will ensue. Thus, creating a vibrant stock market which has been so severely lacking over the past few years."

Despite continuous efforts by Singapore Exchange Regulations (SGX RegCo) to address trading misconduct in the securities space, it has been a tough year for corporate governance, leaving minority investors questioning the efficacy of deterrence.

"My thoughts on 2018 is that it has been a horrible year from a corporate governance and minority investors' standpoint,'' Mak Yuen Teen, associate professor of accounting at the NUS Business School, summed up.

Prof Mak, who has been observing corporate governance developments here for 20 years, feels this is unfortunate because 2018 marks the year when certain areas of corporate governance have been strengthened through the revised Code of Corporate Governance and listing rule changes. These include efforts to encourage board renewal and strengthen director independence.

These positive developments have been outweighed by serious corporate governance lapses and scandals involving yet more S-chips such as Midas Holdings - a former billion-dollar company riding on China's booming rail sector which has fallen victim to alleged fraud and misdeeds overseas. Others include foreign listings like Noble Group and YuuZoo Corp; as well as local companies like Datapulse Technology and Trek 2000 International.

"Clearly, what we have is not just an S-chip problem. Bad behaviour is everywhere,'' Prof Mak said.

Minority shareholders were faced with various controversial delistings like Vard Holdings and Wheelock Properties, where major shareholders sought to privatise the company.

"An offer from a major shareholder to take a company private looks to me just like a super duper interested person transaction. However, if done through the voluntary delisting route under SGX rules, the major shareholder can vote," Prof Mak lamented in his blog entitled "Annus horribilis for minority shareholders".

SGX RegCo recently closed a consultation on whether to disallow offerors and parties acting in concert from voting on voluntary delistings, scrapping the 10 per cent block provision as well as requiring offer prices to be both fair and reasonable.

Retail investor Ong Cheng Kian, 78, welcomed the move but added: "Key will be what constitutes a reasonable and fair offer. Otherwise, small shareholders like myself will be repeatedly coerced to let go of our shares at unfairly low prices."

Newly-listed companies this year, notably those on Catalist, have disappointed.

As of early December, 12 out of the 13 newly-listed companies are suffering from hypothermia, with stock prices frozen well below their initial public offer prices.

Adding to the winter chill, Stamford Land's defamation suit against one of its shareholders, Mano Sabnani, has left a chilling effect, even though the case was eventually settled after mediation by SGX RegCo's chief executive officer Tan Boon Gin.

Almost six months since the SGX allowed companies with dual class shares (DCS) to list on the mainboard, opposing voices remain loud.

According to findings from the Asian Corporate Governance Association (ACGA) and CLSA's ninth edition of corporate governance (CG) Watch, the introduction of the controversial DCS has damaged regulatory credibility whilst contradicting emphasis on investor stewardship.

ACGA secretary-general Jamie Allen says DCS is undermining the principle of fairness, and this could have a far-reaching adverse impact on investor trust in Asia regulatory systems.

Adding to investors' jitters is the proposal to roll back quarterly reporting (QR), implemented in 2003 for listed companies with market capitalisation of above S$20 million, and subsequently raised to S$75 million.

Even if QR is retained, SGX has stated it would relax the requirements for companies with smaller market capitalization to help cut compliance cost.

Like Mr Nalla, Prof Mak wishes to see proper investigation into all those companies where serious lapses have been identified in the media in the past year, and tough action taken against those responsible.

"Until that happens, directors are not going to take their responsibilities seriously and the downward spiral will continue,'' he warned.

The corporate governance expert also hopes to see action taken against sponsors and continuing sponsors for failing to discharge their responsibilities, resulting in shoddy work during listings.

High on his wish list is a "comprehensive review of the listing rulebook to better align with standards in other markets and better focus on substance rather than form".

The professor suggested that authorities set up a task force to look into how to enhance investor protection.

This could include a new body to monitor corporate misconduct, a proxy advisory firm for small caps, and an investor protection centre like Taiwan that sues directors on behalf of shareholders.

"Beyond that and hopefully no later than 2020, I would like to see SGX giving up its frontline regulatory role, and a separate securities regulator formed - like the Securities and Futures Commission (SFC) in Hong Kong, Securities Commission in Malaysia and the Securities and Exchange Commission (SEC) in the US. Almost every other market has a dedicated securities regulator, I can never understand why we are so hesitant to do that,'' Prof Mak said.

"We are in need of major surgery, not just panadol."