The market needs fresh breadth and depth beyond the usual counters
WHEN it comes to measures to improve interest in the local stock market, most observers would agree that what is needed are quality instruments and listings that expand the depth and breadth of the market, and can generate wider interest beyond the present concentration on just banks, property, the Jardine group and Reits.
Observers also say that the penny stock crash of October 2013 has severely dented confidence within the ranks of retail investors, leading them to abandon local stocks in droves. As a result, the authorities have been urged to do their utmost to restore confidence as quickly as possible. A third suggestion is for the government to start investing its Central Provident Fund (CPF) reserves in the local market in order to attract liquidity and more institutional investors ("It's time to consider injecting CPF capital into the Singapore bourse", The Business Times, Nov 30).
The writer points out that one reason Australia is attracting technology firms from South-east Asia, Israel and Silicon Valley is that its market is supported by its US$2 trillion superannuation pool; pension funds own nearly half of all shares on issue in Australian equities in 2018.
This suggestion is worth exploring, but it remains to be seen if a cautious government that prefers to err on the side of prudence and has to deal with an ageing population who might not have sufficient funds for retirement would change its stance any time soon.
On the issue of restoring confidence, it must be recognised that the authorities can only do so much if the rest of the investing ecosystem fails to properly discharge their fiduciary duties.
For example, brokers too have to shoulder part of the blame for the loss of confidence: When China stocks listed here were booming between 2003 and 2007, many were on the "buy" lists of local brokers - recommendations that the public relied on when making their investment decisions. That they all failed later surely cannot be the sole responsibility of the authorities.
Similarly, companies now under investigation for possibly faking or overstating their accounts were also all hugely popular with brokers and regularly occupied their "buy" lists. Full restoration of confidence can therefore occur only if all connected to the financial markets - not just regulators - fulfil their roles properly.
On the issue of attracting new and quality listings, there should also be greater consideration given to the type of companies that might thrive in a technologically disrupted world populated by millennials.
On this front, the Singapore Exchange (SGX) has already taken the crucial first step by amending its listing rules to allow dual-class share structures. As for millennial customers, Goldman Sachs Asset Management (GSAM) in its 2017 report "How Millennials Are Changing Emerging Markets" notes that with an increased emphasis on experiences, recreation and wellness, millennials are spending more on leisure activities, self-improvement, travel, health, eating out, beauty products and apparel. "These industries are still largely under-represented in traditional market-cap weighted benchmarks," GSAM noted.
This is certainly worth thinking about because as far as the local market is concerned, these types of businesses have traditionally been viewed as being fairly lightweight and perhaps not as investment-worthy as market stalwarts such as banking and property.
This thinking will have to change.
