Singapore stock market doesn’t need global champions, just big ambitions

SOME months ago, a reader wrote in to lament the dearth of global champions on the Singapore Exchange . Excepting local bank DBS and flag-carrier Singapore Airlines , he said, there were no global brands worth talking about.

Speaking in Parliament earlier this month, Second Minister for Finance Chee Hong Tat seemed to agree.

He said that state investor GIC “can already invest in appropriate Singapore companies if these companies have a global footprint and generate good returns” – the implication of that being that GIC hasn’t invested because Singapore companies don’t meet those criteria.

What does it mean to have a global footprint, though? What qualifies as a global brand? What would it take to secure GIC’s stamp of approval, or the approval of any world-class fund manager? Global success may not be the only factor.

The five largest home-grown companies, by weighting in the benchmark Straits Times Index (STI), are the three banks – , UOB and OCBC – followed by telco Singtel and real estate asset manager CapitaLand Investment .

CapitaLand’s FY2023 annual report shows only 20 per cent of its revenue came from Singapore. China accounted for 16 per cent, other developed countries for 52 per cent, and other emerging countries, 12 per cent.

The other four companies are not as diversified, with Singapore revenue or income ranging from 42 per cent to 62 per cent. Nevertheless, they would probably count among the more well-diversified of the Singapore-listed counters.

All five also enjoy decent institutional ownership, and are probably the gold standard for the Singapore market.

How do these blue chips measure against their US-listed peers? The five largest companies by weighting in the Dow Jones Industrial Average – chosen for its wider variety at the top – are insurer UnitedHealth Group, bank Goldman Sachs Group, software company Microsoft, home goods retailer Home Depot and industrial equipment manufacturer Caterpillar.

UnitedHealth, with a market capitalisation of US$511 billion, is among the 20 largest companies in the world.

It is a long way from the trillion-dollar-club, which consists of tech companies Apple, Microsoft, Nvidia, Alphabet, Amazon and Meta Platforms; and oil-and-gas company Saudi Aramco. On size alone, however, UnitedHealth probably counts as a global leader – and yet it gets 97 per cent of its revenue from the United States.

Home Depot’s market capitalisation of US$357 billion puts it within the world’s 30 largest companies, but it gets 92 per cent of its revenue from the US.

Even Microsoft and Caterpillar, which are global brands, are not significantly more diversified than Singapore’s largest companies. Microsoft gets half its revenue from the US; Caterpillar’s US share is at 47 per cent.

Only Goldman Sachs derives most of its revenue outside its home base – just 18 per cent of its revenue comes from the Americas.

Of course, it is much harder for a company to diversify geographically when its domestic economy is as large as the US. Perhaps, then, the benchmark shouldn’t be revenue diversification, but global presence.

Microsoft and Caterpillar probably qualify on that measure, as would Goldman Sachs. In fact, many US-based companies would make the cut.

Visual Capitalist, which analysed data from consultancy Brand Finance, notes that 51 of the world’s 100 most valuable brands are US companies – with total brand value of US$3.2 trillion.

China came in second, with 19 brands valued at US$829.9 billion. Germany was third, with eight brands valued at US$347.1 billion. Japan was fourth, with six brands valued at US$200.2 billion.

These four countries are also the world’s four largest economies by GDP.

Other economies with representation in the top 100 are Canada, France, India, Ireland, Saudi Arabia, South Korea, Switzerland, Taiwan and the UK. All are larger economies than Singapore.

Is Singapore, then, just too small to produce a global champion? Is building an internationally attractive stock market a lost cause?

Institutional investors don’t only invest in global champions, though. GIC’s South-east Asia interests include stakes in Myanmar’s Yoma Bank, Indonesian toll-road operator Jasamarga Transjawa Tol and Malaysia’s Sunway Healthcare.

GIC’s public holdings, meanwhile, include companies that are large but may not qualify as global champions: US food delivery company DoorDash, China’s New Oriental Education & Technology Group, and restaurant group Yum China Holdings.

The argument, then, that the Singapore market needs better stocks may be true, but doesn’t fully explain the problem. What else do companies lack?

One possibility: big ambitions. Singapore-domiciled companies raised US$531.5 million via follow-on offerings in the first half of this year, a 76.6 per cent decline from the same period last year, according to data from the London Stock Exchange Group. Outbound mergers and acquisitions fell to an eight-year low, down 27.8 per cent to US$10.9 billion.

Weak sentiment is partly to be blamed. Asia-Pacific deal-making activity declined 22 per cent in the first half. The value of follow-on offerings fell too, although by a more modest 16.8 per cent. The number of follow-on offerings actually rose 8.1 per cent.

Companies in Singapore probably also find it tough to raise equity financing because their stocks are depressed, and they may struggle to do deals if they cannot raise enough money.

With a sufficiently ambitious narrative, however, there is no reason a company cannot break out of this vicious circle.