It’s sink or swim time for local small and mid-cap stocks
They need to be ready to pitch themselves when investors come knocking
[SINGAPORE] The Monetary Authority of Singapore’s recent initiatives to revive the local bourse have injected fresh optimism into the equity market, lifting valuations of undervalued small and mid-cap stocks.
But such reratings may not hold if they rest only on liquidity and cheap valuations. To remain on investors’ radar, these counters must show measurable results that justify rising expectations.
Without consistent performance, small and mid-caps risk missing out on the rising tide of investor interest, repeating the cycle of early excitement followed by fading confidence.
Rising interest
Small and mid-cap stocks on the Singapore Exchange (SGX) have seen a marked improvement in the last quarter.
According to SGX data, the FTSE ST Mid and Small Cap Index rose 9 per cent in the third quarter of FY2025 to Aug 12, compared with just 1.8 per cent in the first half of the fiscal year.
It also outpaced the blue-chip Straits Times Index, which rose 7 per cent over the same period.
Analysts told The Business Times that the interest was likely driven by the S$5 billion funding initiative by the market review committee, also known as the Equity Market Development Plan (EQDP).
The first tranche of funds – S$1.1 billion allocated on Jul 21 – was distributed to three fund managers to boost liquidity in small and mid-cap stocks.
Test of fundamentals
With further tranches due soon, analysts say that interest in the Singapore market is still in its early days, leaving room for the small and mid-cap segment to grow.
In particular, companies with strong fundamentals and healthy balance sheets are likely to attract long-lasting investor interest.
UOB Kay Hian (UOBKH), in a Jul 23 note, highlighted names such as Food Empire , UMS , Frencken , PropNex and Sheng Siong , citing drivers including contract wins, steady dividends and rerating potential.
For investors, the challenge lies in identifying which of these names are buoyed by fundamentals that can endure over time, and which are lifted mainly by cheap valuations that may not last.
To that end, companies will need to deliver on concrete milestones such as meeting earnings forecasts, securing order books and maintaining dividends to prove recent gains are sustainable.
Take Frencken, for instance. With a market capitalisation of about S$600 million, the semiconductor company has been among analysts’ top picks to ride the small and mid-cap wave, with its share price climbing around 30 per cent in the last six months. It is currently trading at roughly 15.7 times earnings.
UOBKH has highlighted Frencken as a potential beneficiary of the EQDP, citing healthy earnings growth from stronger semiconductor demand and a valuation that still lags peers. CGS International similarly noted on Aug 15 that a faster recovery in its semiconductor business could be a key catalyst for further rerating.
Ultimately, Frencken, like other small and mid-cap counters, must sustain momentum with consistent profits, solid order books and reliable dividends, or risk seeing investor confidence fade as quickly as it rose.
Competing against bigger players
Admittedly, small and mid-cap stocks face an uphill battle against the big boys.
Blue-chip companies have consistently justified investor confidence by hitting tangible milestones. These include staying profitable, monetising non-core assets, paying out special dividends and executing transformative mergers and acquisitions.
Under these circumstances, investors that are looking for superior returns may think twice about risking their investments with a smaller-cap company, when a bigger-cap company can give them the same growth and dividend that they are looking for with greater certainty.
What should small caps do?
With further EQDP tranches set to roll out over the next few quarters through to 2026, small and mid-cap companies will have to step up quickly to convince investors.
At the very least, they must sharpen their investor engagement strategy. This means holding regular briefings with analysts, investors and the media, while ensuring that presentations and reports are up to date and accessible.
Although they lack the resources of bigger peers, small and mid-cap companies need to stay ready to pitch themselves when investors come knocking.
More importantly, they must deliver consistent performance, especially in the next few quarters, as fund managers look for dependable names to deploy EQDP money.
The funding initiative may bring liquidity into the market, but whether that translates into lasting value will depend on execution. For small and mid-cap companies, it is sink or swim time.
